Bitcoin's Sharpe Ratio Falls to -10... Are Signs of a Bear Market Bottoming Out?
Analysis suggests that Bitcoin's Sharpe ratio, which measures risk relative to return, has fallen to -10, entering a range historically associated with the end of bear markets. However, this does not signal an immediate bull market reversal; rather, it signals that the market is nearing a turning point.
On the 8th (local time), Darkfost, an analyst at on-chain analytics firm CryptoQuant, said through X (formerly Twitter), “Bitcoin’s Sharpe ratio has entered a particularly noteworthy phase, which is consistent with the end of past bear markets.” He added, “This decline in the indicator only shows that the current risk-reward structure is reaching an extreme stage, and does not signal an immediate transition into a bull market.”
The Sharpe ratio is a measure of the expected return for each unit of risk an investor assumes. A value of -10 indicates excessive risk relative to the low return. According to Cryptocont, this is the lowest level since March 2023. The index hit zero in November last year, when BTC fell to $82,000 (approximately KRW 1.22 billion). Even lower values coincide with bear market lows, such as those in late 2022 and early 2023 and late 2018 and early 2019.
Darkpost noted that "indicators are still deteriorating, making Bitcoin's current investment returns unattractive relative to risk." Nevertheless, he analyzed that "this indicator pattern is a typical pattern that has historically emerged near market turning points," suggesting that a trend reversal is gradually approaching.
It may take 'several more months' for a real turnaround.
However, some argue that it's too early to expect a rebound. Darkpost warned, "This phase could last for several months, and Bitcoin could continue to decline further until a full-scale reversal occurs."
10x Research also argued in a report published on the 5th that “while investor sentiment and technical indicators are showing extreme figures, the main downtrend is still valid,” and that “there is no need to enter recklessly in the absence of clear rebound factors.”
Indeed, the Bitcoin price plummeted to $60,000 (approximately 87.84 million won) on the 2nd and recovered to $71,000 (approximately 103.98 million won) as of the 5th. However, it remains down 44% from its October high of $126,000 (approximately 184.46 million won). The prevailing market sentiment remains a bear market.
While the sharp decline in Bitcoin's Sharpe ratio is often interpreted as a bottoming signal, analysts believe it will take more time for an actual trend reversal. Investors should adopt a conservative approach, as this is a time when caution regarding market risks is necessary rather than immediate investment decisions.
📉 "Sharpe Ratio -10. Does this mean the bear market is over?"
While many investors interpret a declining Sharpe ratio as a sign of the end of a bear market, a true market turnaround may yet be upon us. Experts emphasize that these times demand preparation to seize opportunities.
So, what you need now is more than just news reporting; it's the ability to interpret data. You need to be able to read the market's language, as expressed by on-chain indicators like the Sharpe ratio, MVRV-Z, and SOPR, to buy at true lows.
TokenPost Academy offers a systematic seven-step training course to develop these analytical skills.
- Step 2: The Analyst – Uses on-chain data and tokenomics to determine the true value of a project.
- Learn how to interpret the MVRV-Z and SOPR indicators, which analyze market sentiment and buying timing, like the Sharpe ratio.
- It exposes hidden risks such as insider lockups, inflation rates, and user activity.
🚀 Develop the power to turn uncertain times into opportunities at TokenPost Academy.
Curriculum : 7-step masterclass covering everything from the basics to on-chain analysis, DeFi, futures, and macroeconomics.
Special offer: Get your first month free!
Go to : https://www.tokenpost.kr/membership
TP AI Precautions
This article was summarized using a TokenPost.ai-based language model. Key points in the text may be omitted or inaccurate.
Get real-time news... Go to TokenPost Telegram
Copyright © TokenPost. Unauthorized reproduction and redistribution prohibited.
