Did your crypto trading beat just holding Bitcoin?

An exchange's profit figure compares what your coins are worth now with what they cost you, and each exchange decides what a coin cost. Kraken Pro uses the average price you paid. A coin deposited from another wallet is given its price on the day it arrived, so a gain it made before the transfer is not in the figure, and Kraken lets you edit that entry price yourself. Binance.US values deposits the same way.

OKX offers two methods for the same trades and lets you switch between them. In its own example, a trader buys 2 ETH at 3,000 and sells one at 3,500. With ETH at 4,000, the average-cost method shows a profit of 1,000, or 33.3%, and the cumulative-cost method shows 1,500, or 60%. Coinbase's gain and loss report, made for taxes, gives crypto received from another wallet a cost of $0 until you fill in what you paid, which counts its whole value as a gain when it is sold.

Each of these is documented, and none is wrong on its own terms. They answer a narrower question than the one a trader asks: what a coin is worth against what it cost. None of them compares your trading with holding Bitcoin, and a figure that moves with the method you pick, or with an entry price you typed, is a poor measure of skill.

Profit and loss measures you against cash, as though the alternative to trading were keeping the money in a bank. For someone who trades crypto, the real alternative is holding crypto. Measured against cash, anyone who held through a good year looks skilled, and the trading itself never enters the comparison. Every trade is a bet that you can do better than sitting still, and the honest test is whether you did.

Bitcoin is the obvious thing to sit still in. It is the largest crypto asset and has the deepest market, every exchange and chain lists it, and most of the market moves with it: over six months of daily prices, almost nine in ten of the actively traded tokens we price moved in the same direction as Bitcoin. Studies of the whole crypto market find the same common factor running through it (Liu, Tsyvinski and Wu, Journal of Finance, 2022). An index of the whole market would be the textbook choice, but nobody holds an index as simply as they hold Bitcoin, and an index needs weights and a schedule for rebalancing them that Bitcoin does not.

Beat Bitcoin and your trading added something. Fall behind it and you would have done better doing nothing.

The comparison has three parts, and the second is where most home-made answers go wrong.

1. Use the same days for both. Your return from 1 August to 31 October is compared with Bitcoin's from 1 August to 31 October, close to close.
2. Take out the money you moved in and out. A deposit is not a gain, and a withdrawal is not a loss.
3. Compare your return with Bitcoin's over those days.

For an example of why the second step matters, say you start a quarter with $5,000 and trade it up to $5,500 by the halfway point, a 10% gain. You then deposit another $2,000, which brings the account to $7,500, and trade it to $7,600 by the end. The account grew from $5,000 to $7,600, which reads as 52%. Your trading made $600 of that, and as a return it made 10% on the first half and 1.3% on the second, about 11.5% for the quarter once the two halves are chained together. If Bitcoin rose 16% over the same quarter, the honest answer is that you finished behind it.

The way to keep deposits and withdrawals out is to measure one day at a time: each day's profit divided by the money that was at work that day, with the days then chained together. This is the standard way fund managers report returns when money moves in and out, and it is how Sharpe builds a record. A purchase or a sale is not a profit in itself; a gain counts while a position is held, as its price moves. A token sent to another of your wallets leaves the record as a withdrawal at its value when it left, not as a loss.

A trader can finish ahead of Bitcoin on the strength of three lucky days. Ninety days of steady results and three days of fortune can end at the same total, and they are not the same evidence. A fair comparison asks how far ahead you are and how sure anyone can be that the lead is real.

Sharpe compares each day of a record with Bitcoin's and turns the differences into a single score, discounted by half its own uncertainty. A short record, or one whose result rests on a few large days, is discounted more, and a record built on a fortnight of luck ranks below a steadier one with the same lead. The score is placed on a ladder from Iron to Master, with an Edge number where bigger is better. Edge 2,000 is the Bitcoin line. A record at or above it finished its 90 days ahead of holding Bitcoin, by enough that the lead clears half its own uncertainty. Below Master, each tier spans 500 Edge. The full method is set out in the methodology, equations included.

On Sharpe's public leaderboard, about one in ten of the on-chain traders we rank sat at or above the Bitcoin line over their latest 90 days, and about seven in ten had lost money outright. Bitcoin rose about 17% over the same stretch. Of the traders who made money, about three in four still finished below the line. The board is mostly traders of small tokens on Solana, so it says more about that corner of the market than about every trader. Within it the pattern is plain. Making money in a rising market is common, and beating the market you were already in is rare. The full numbers are in a separate article.

You can paste any Solana or Ethereum wallet into Sharpe without signing up, including any address from the leaderboard. It reads the wallet's trades from the chain and shows its days against Bitcoin's and where it sits on the ladder, once it has enough trading days to be placed. With an account you can connect Binance, Coinbase or Kraken with a read-only key and see your exchanges and wallets as one record.