Bitcoin’s Sharpe Ratio Is Near Zero — Here’s What Happened the Last Time It Collapsed

BTC-USD +4.10%

Key Takeaways

• Bitcoin’s Sharpe ratio has collapsed toward zero,

• Past Sharpe ratio collapses in 2019, 2020, and 2022 preceded extended corrective periods.

• Analysts warned of further downturn for Bitcoin.

Bitcoin’s risk-adjusted performance is hitting new lows, a level historically associated with market stress and risk repricing, according to new data.

The downturn comes as analysts warn of steeper losses amid growing concerns that the market’s latest slide could deepen into a broader bear phase.

Bitcoin Sharpe Ratio Nears Zero

New CryptoQuant data shows Bitcoin’s Sharpe Ratio, a widely used gauge of risk-adjusted returns, has slipped back toward zero in recent days.

Analysts said the readings typically reflect periods of elevated uncertainty and weak return quality, often occurring during times of strong volatility.

“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,” a CryptoQuant analyst said.

“Investors seeking optimal asymmetry typically find better conditions during these low-Sharpe phases than during high-Sharpe euphoric peaks,” the analyst wrote.

The analyst said this represents the essence of “contrarian investing, buying when the risk-adjusted math looks terrible in the rearview mirror but promising ahead.”

What’s Happened In The Past?

Bitcoin’s Sharpe Ratio, which compares excess returns to volatility, has now retreated to levels that historically appear only every few years.

CryptoQuant noted that similar collapses in 2019, 2020, and 2022 preceded extended phases of risk repricing.

While the move does not signal a definitive bottom, analysts say compressed Sharpe levels tend to mark the early stages of improving forward returns, provided that price conditions stabilize.

However, analysts have urged traders to remain cautious.

CryptoQuant’s analyst noted that “until the Sharpe Ratio starts turning upward, short-term noise can remain dominant, and positioning should be sized accordingly.”

“Bitcoin is not yet signaling trend recovery, but it is signaling that the risk-adjusted landscape is becoming more attractive for forward returns,” the analyst wrote.

Bitcoin Whales Regaining Ground

The ratio’s decline comes as fresh blockchain data suggests modest re-accumulation among some larger Bitcoin investors.

According to Santiment, the number of wallets holding at least 100 BTC has risen 0.47% since Nov. 11, adding 91 new mid-sized whale addresses.

The uptick comes after months of declining balances among the biggest holders, with wallets holding more than 1,000 BTC shrinking steadily.

Bitcoin’s Outlook

At the time of reporting, Bitcoin was trading around $87,300, down nearly 5% over the past week.

CCN analyst Valdrin Tahiri said Bitcoin’s long-term Elliott Wave structure points to a potentially extended correction phase after completing a multi-year advance.

According to Tahiri, Bitcoin has posted a clear five-wave upward movement since November 2022.

“Bitcoin has completed the fifth and final wave of its upward movement and is now correcting inside wave A of its A-B-C correction,” he wrote.

Tahiri’s sub-wave analysis also indicates that the internal structure of the fifth wave has been fully completed, reinforcing the view that the market has shifted into corrective territory.

He noted that wave A is still developing and could push Bitcoin lower toward the 0.5 Fibonacci retracement support near $71,000.

Using this wave-based framework, Tahiri’s method projects Bitcoin trading around $73,000 by the end of 2026 before potentially sliding to $57,000 by late 2027.

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