Alpha
In short: Alpha is a measure of an investment’s performance relative to a benchmark. It shows how much better or worse an investment did than its reference point…
Alpha is a measure of an investment’s performance relative to a benchmark. It shows how much better or worse an investment did than its reference point, such as a market index or, in crypto, often Bitcoin or a broad crypto index.
Why it matters
Alpha helps separate skill from general market movement: when the whole market rises, most holdings rise with it, and alpha asks whether a fund, trader or strategy beat simply holding the benchmark. Positive alpha means outperformance and negative alpha means underperformance. More formal versions, such as Jensen’s alpha, also adjust for risk using beta, so a strategy that took on far more risk does not automatically look skillful. In crypto communities, “alpha” is also slang for valuable or early information, and such tips are often unverified.
Example
Suppose a crypto fund gains 30% over a year while its benchmark gains 20%. In the simplest calculation, the fund’s alpha is 10 percentage points. If instead the fund lost 5% while the benchmark lost 15%, its alpha would still be positive, because it lost less than the market it is measured against. A fund that simply matched its benchmark would have an alpha of zero.