What's going on in the crypto market seems too good to be true. On January 1, 2021, I had a $3,500 crypto portfolio consisting of Steem and Hive coins. On December 31, 2021, the value of my crypto portfolio reached $50,000 due to the rise in the value of Hive and the trades I made during the year.

The cost of 4-year engineering education at Koç University, which is considered to be the best private university in Turkey, is 60,000 dollars. The university campus is within walking distance of our house. Last year, I had earned most of the money necessary for my son, who will finish high school this year, to study at Koç University. I did not sell any of my cryptos because I believe the future of crypto is bright.

On January 24, 2022, the value of my crypto portfolio had dropped to $30,000 and has risen to around $40,000 as of today. An amount that could afford two-thirds of my son's 4-year college tuition marks a nearly 12-fold increase compared to $3,500 at the start of last year.

I would like to point out that I also have other savings for my children's university education that I invest in non-crypto assets.

Photo by Joshua Aragon on Unsplash

Is crypto investment too good to be real? Why is only a certain type of investors showing interest in this asset class, even though the total value of cryptocurrencies is more than doubling on average every year? The answers to these questions are probably hidden in the crazy price movements that can be experienced in the crypto market. There are relatively few investors who can tolerate the value of their savings falling in half, a third, or even a quarter within a few months.

So is there an objective benchmark to compare the risk we take on investing in crypto assets with the return we expect to get?

We know that risk and return are brothers. As a general principle, the higher the risk, the higher the return potential. On the other hand, it is possible to get high returns by taking reasonable risks, as seen in the crypto example.

Professor William Sharpe was awarded the Nobel Prize in economics in 1990 for his work on the capital asset pricing model. Since this date, the use of the Sharpe ratio, which was developed by Prof. Sharpe in 1966, in the measurement of the risk-return comparison became very popular.

The Sharpe ratio is calculated by dividing, the return provided by an asset in addition to the risk-free rate, by the standard deviation of that asset's excess return. A Sharpe ratio above 1 is considered good, above 1.5 is considered very good, and above 2 is considered excellent. The Sharpe ratio can be calculated for periods such as 30 days, 3 months, 1 year, 3 years. Hive's 1-year Sharpe ratio is 1.95. The 1-year Sharpe ratios of Bitcoin, Ethereum, and BNB are 0.24, 1.21, and 1.60, respectively. In order for you to make a comparison, I would like to point out that the last 1-year Sharpe ratios of Meta and Amazon stocks are negative. For Apple shares, the 1-year Sharpe ratio is 1.07.

You can access the Sharpe ratios of the major cryptocurrencies in various periods via the link https://messari.io/screener/risk-metrics-B80547AE.

Conclusion

The statistics I have given above show that the risk-return performance of major crypto assets is quite good. Could this performance be limited to just one year?

The three-year Sharpe ratios of Ethereum, BNB, and Hive, which are the main coins in my portfolio, are 1.47, 1.64, and 1.39, respectively. Seeing that these values ​​are well above 1, I have renewed my faith in crypto.

Summary of the conclusion: I keep on HODLing!

Thank you for reading.

Note: I am not a financial adviser. Please do your own research regarding the assets I mentioned in my post.