A technical indicator for Bitcoin known as the Sharpe Ratio has dropped to near zero, a level typically seen around major market bottoms.
CryptoQuant analyst I. Moreno stated on Monday that the Bitcoin Sharpe Ratio is at a level "historically associated with moments of maximum uncertainty and the early stages of risk repricing."
The analyst noted that Bitcoin is now entering the same region seen in 2019, 2020, and 2022, when the ratio lingered at "structurally depressed levels" for a period before a new multi-month trend emerged.
The Sharpe Ratio measures the relationship between return and risk. When it approaches zero, it indicates that Bitcoin is providing poor returns relative to its volatility, creating a better investment configuration.
Historically, periods of low Sharpe Ratios often precede new long-term upward trends, when smart money enters as the risk-return balance improves. This is in contrast to situations where the Sharpe Ratio is high during euphoric peaks.
At the beginning of 2024, when the market was hot, the ratio soared to nearly 50, as Bitcoin first broke through $73,000.
However, the analyst warned that a trend recovery has not yet materialized.
According to on-chain data from Glassnode, over 8% of Bitcoin was transferred in the past week.
This has only occurred twice in the past seven years, both during bear markets in December 2018 and March 2020.
"This makes the recent pullback one of the most significant on-chain events in Bitcoin's history," commented Joe Burnett, Director of Bitcoin Strategy at Semler Scientific.
In just 10 days, BTC plummeted by 23%, dropping below $24,000, and hit a low of about $82,000 on Friday. It has since seen a slight rebound, reaching $89,000 in Monday evening trading.
Related: CoinShares: Despite $1.9 billion outflow from crypto funds, investor sentiment shows "preliminary" recovery
Original article: “Bitcoin (BTC) Sharpe Ratio Nears Zero, a Rare Risk-Reward Signal”
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