Bitcoin’s Sharpe Ratio Is Nearly At Zero, A Rare Risk-reward Signal
Bitcoin’s Sharpe ratio has fallen to nearly zero, matching levels from 2019, 2020, and 2022 market bottoms, as 8% of all BTC moved onchain in historic volatility.
A Bitcoin technical indicator known as the Sharpe ratio, has dropped to nearly zero, reaching levels usually seen near major market bottoms.
The Bitcoin Sharpe ratio is at “a level historically associated with moments of maximum uncertainty and the early stages of risk repricing,” said CryptoQuant analyst I. Moreno on Monday.
The analyst observed that Bitcoin is now entering the same zone seen in 2019, 2020 and 2022, when the ratio spent time at “structurally depressed levels” before new multimonth trends emerged.
The Sharpe ratio measures return versus risk. When it is near zero, it means Bitcoin (BTC) has delivered poor returns relative to its volatility, creating a better investment setup.
Historically, periods of low Sharpe ratio have often preceded new long-term uptrends when smart money enters, as the risk-reward balance improves. It is the opposite of buying during euphoric peaks when the Sharpe ratio is high.
The ratio surged toward 50 in early 2024 when markets were pumping, and Bitcoin topped $73,000 for the first time.
Related: Bitcoin rallies as US dollar strengthens: Are crypto traders walking into a trap?
However, the analyst cautioned that trend recovery has yet to materialize.
More than 8% of all Bitcoin was moved over the past week, according to onchain data from Glassnode.
Source: CoinTelegraph
