BTC Sharpe ratio enters -10, approaching the lowest level of past bear markets.
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Sharpe ratio nears 2018 and 2022 bear market levels
On the 10th, Darkfost, an analyst at on-chain analytics firm CryptoQuant, announced through Official X that Bitcoin's Sharpe ratio had fallen to -10. The Sharpe ratio is an indicator that measures the performance of an asset relative to the risk it takes in return, and entering a negative range signifies an extreme risk-reward imbalance in the market.
According to CryptoQuant, this is the lowest level since March 2023 and is similar to levels observed during the bear market phases of late 2018 and late 2022, both of which occurred when Bitcoin was deep in a long-term bear cycle.
Darkpost assessed that "the Sharpe ratio has entered a range that has historically coincided with the final stages of bear markets," but explained that this does not signal an immediate rebound, but rather indicates an extremely deteriorated risk-return structure.
Despite the price rebound, the attractiveness of risk is low.
Bitcoin plummeted to $60,000 during trading on the 7th, but rebounded to around $71,000 as of the 10th. However, the decline from its peak remains significant. According to foreign media analysis, Bitcoin is down approximately 44% from its peak of $126,000 in October.
Darkpost pointed out that "the risk involved in investing in Bitcoin is still high compared to recent returns," and analyzed that the attractiveness of Bitcoin relative to its risk has not yet recovered as the Sharpe ratio continues to deteriorate.
Past cases have often shown that the Sharpe ratio remains in negative territory for extended periods, followed by several months of additional adjustments before a reversal, and this phase also raises the possibility of several months of additional volatility.
Downtrend persists despite technical rebound
In a market report released on the 10th, 10x Research stated, "While sentiment and technical indicators are approaching extreme levels, the overall downtrend remains intact." In the absence of a clear macro catalyst, the urgency for aggressive buying is low.
Market analysts believe that despite Bitcoin's short-term rebound, the overall downward pressure on the cryptocurrency market is likely to persist unless risk indicators such as the Sharpe ratio improve.
This deterioration in indicators could be interpreted as a signal that discussions about a short-term bottom are intensifying, but it also suggests that there may be considerable time left until the bear market ends, and this is considered a situation requiring a cautious approach from investors.
Reporter Jeong Ha-yeon yomwork8824@blockstreet.co.kr
