A rare price indicator has reappeared, and this could potentially be good news for Bitcoin. This indicator was previously a sign of a bottom during market downturns in 2019, 2020, and 2022. This level only appears once every few years and has often preceded major rallies in previous cycles. While not guaranteed to signal a bottom, it does indicate that the risk-to-reward ratio is gradually improving.
The Sharpe Ratio and Bitcoin #
Bitcoin’s so-called Sharpe ratio is currently below zero. This indicator measures how much return an investment generates relative to the risk taken. When this value moves toward or below zero, as is now the case with Bitcoin, it means that price movements have been volatile while returns have lagged.
Analysts compare the current level to those of 2019, 2020, and 2022. In those years, the ratio remained low for extended periods, after which new long-term price increases began. For investors, this phase feels uncomfortable, but historically, new opportunities often emerge here.
CryptoQuant analyst Moreno calls this the level where great uncertainty meets the beginning of risk repricing.
“The Risk-Reward Setup That Only Appears Once Every Few Years”
“The Bitcoin Sharpe Ratio has collapsed back toward the zero line, a level historically associated with moments of maximum uncertainty and the early stages of risk repricing.” – By @MorenoDV_
According to him, Bitcoin is entering a zone that previously directly preceded new uptrends. In those earlier phases, the ratio remained structurally low for longer periods, after which the market slowly turned.
Shift in Risk #
Moreno emphasizes that the current level does not guarantee a bottom. It mainly indicates that future returns could become more attractive once the market calms down and volatility decreases. This contrasts with periods when the Sharpe ratio is actually high. At those times, investors often buy in phases where the price has already increased significantly. The risk ratio is then less favorable.
Unlike those peak periods, Bitcoin is now at a point where smart money has historically entered more often. In financial markets, these are parties that dare to take risks when others are hesitant. They seek periods where the risk-to-expected return ratio shifts in their favor. Bitcoin currently shows no clear trend reversal.
On-Chain Data Reinforces the Picture #
Over the past week, more than eight percent of all Bitcoin was moved. This almost never happens. Only in December 2018 and March 2020 was such a large portion in motion. Due to this enormous activity, this recent price decline became one of the most notable on-chain events in Bitcoin’s history.
In two weeks, the price fell by more than 20 percent, to a bottom around €73,500. On Monday, the price cautiously recovered toward €77,000, but as previously noted in Market Updates, analysts are still divided on the next price movement.