Bitcoin’s Sharpe ratio — a key technical gauge of risk-adjusted returns — has fallen to nearly zero, hitting levels typically seen near major market bottoms.
CryptoQuant analyst I. Moreno said Monday that the ratio has slipped into a zone “historically associated with moments of maximum uncertainty and the early stages of risk repricing.”
According to Moreno, Bitcoin is now revisiting the same conditions observed in 2019, 2020 and 2022, when the Sharpe ratio lingered at “structurally depressed levels” before new multi-month trends began to form.
“This does not guarantee a bottom, but it does indicate that the quality of future returns is starting to improve, provided the market stabilizes, and volatility begins to normalize.”
The Sharpe ratio gauges an asset’s returns relative to its volatility. When it falls toward zero, it signals that Bitcoin has generated weak returns for the level of risk taken — a setup that has historically created favorable entry points.
A signal of “smart money” positioning
Periods of depressed Sharpe ratios have often preceded major long-term rallies, as institutional and “smart money” investors step in while the risk-reward profile improves. This dynamic stands in contrast to euphoric market peaks, when the Sharpe ratio climbs and buying becomes less attractive.
Earlier this year, the metric surged toward 50 during Bitcoin’s run to its first-ever $73,000 high.
Still, the analyst warned that a meaningful trend reversal has yet to appear, despite the ratio returning to historically constructive levels.
“Bitcoin is not yet signaling trend recovery, but it is signaling that the risk-adjusted landscape is becoming more attractive for forward returns.”
On-chain activity shows an unusually large amount of Bitcoin moved over the past week, with more than 8% of the entire supply transferred, according to data from Glassnode.
Such a level of movement has been seen only twice in the last seven years — during the deep bear markets of December 2018 and March 2020.
“This makes the latest drawdown one of the most significant on-chain events in Bitcoin’s history,” said Joe Burnett, director of Bitcoin Strategy at Semler Scientific.
Over the past ten days, Bitcoin plunged 23% — more than $24,000 — reaching a low of roughly $82,000 on Friday before staging a modest rebound. The asset climbed back to around $89,000 during late Monday trading.
