According to ME News, on February 9th (UTC+8), Bitcoin's Sharpe ratio fell to -10, approaching the lows of the 2018 and 2022 bear markets, indicating that its risk-reward profile is nearing extremes. CryptoQuant analyst Darkfost pointed out that the Sharpe ratio has entered a range historically consistent with the final stages of bear markets. However, he also emphasized that this is not a signal of the end of the bear market, but rather an indication that the risk-reward ratio is becoming extreme. The ratio is currently at its lowest level since March 2023.
The Sharpe ratio measures the degree to which Bitcoin's returns are relative to its risk. Analysts point out that, in reality, the risk of investing in Bitcoin remains high relative to recently observed returns, and the ratio is still deteriorating, indicating that Bitcoin's performance is not attractive compared to the risks involved. However, a negative Sharpe ratio often foreshadows market turning points. Analysts say that such dynamics tend to appear near market turning points, and we are currently approaching a historically significant trend reversal zone. However, they also warn that this phase could last for months, and Bitcoin may continue to pull back before a true reversal. (Source: ME)
