Your second example (to me) demonstrates the issue with your first. If over a 5y window you can be convinced that US equities have a Sharpe >1, you can be convinced over a 5y window that BTC has a Sharpe > 1.5.
[The Sharpe of the best performing stock is always going to be phenomenally high, does that refute this—I say no, on the grounds that we’re interested in ex-ante Sharpe. If the strategy “always buy the best performing stock” had a Sharpe ratio of >> 0.5 then I would be interested, but I don’t believe that is what we see.]
To be clear, I don’t believe that Sharpe (in general) tops out at 0.5. I think there are plenty of strategies which have Sharpes >> 0.5. I just don’t think they are especially relevant in this context. (Usually because they are capacity constrained, although there are other reasons).
To be honest, if you don’t find 0.5 convincing—that’s fine. You should have even less faith in the value of prediction markets. Nothing wrong with that—it’s the whole point of my post. I just wanted to give people a little hope (or at least the hope I have).
Your second example (to me) demonstrates the issue with your first. If over a 5y window you can be convinced that US equities have a Sharpe >1, you can be convinced over a 5y window that BTC has a Sharpe > 1.5.
[The Sharpe of the best performing stock is always going to be phenomenally high, does that refute this—I say no, on the grounds that we’re interested in ex-ante Sharpe. If the strategy “always buy the best performing stock” had a Sharpe ratio of >> 0.5 then I would be interested, but I don’t believe that is what we see.]
To be clear, I don’t believe that Sharpe (in general) tops out at 0.5. I think there are plenty of strategies which have Sharpes >> 0.5. I just don’t think they are especially relevant in this context. (Usually because they are capacity constrained, although there are other reasons).
To be honest, if you don’t find 0.5 convincing—that’s fine. You should have even less faith in the value of prediction markets. Nothing wrong with that—it’s the whole point of my post. I just wanted to give people a little hope (or at least the hope I have).