A key technical indicator for bitcoin, the Sharpe ratio, has dropped to near zero, mirroring levels observed during the 2019, 2020, and 2022 market lows.

This metric, which measures return relative to risk, signals that bitcoin’s recent returns have been poor compared to its volatility but may be setting up for a more favorable investment landscape if stability returns.

Sharpe ratio at critical levels

CryptoQuant analyst I. Moreno noted that bitcoin is entering a zone “historically associated with moments of maximum uncertainty and the early stages of risk repricing.”

Moreno stated:

“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.”

Periods of a low Sharpe ratio have often come before new multimonth trends, as seen after previous market bottoms.

The ratio surged to 50 in early 2024 as bitcoin reached new highs above $73,000, but has since collapsed as price volatility increased and returns faded.

Historic onchain activity

Onchain data from Glassnode revealed that more than 8% of all bitcoin was moved in the past week. This level of activity has only been recorded twice in the last seven years, both during previous bear markets—December 2018 and March 2020.

Joe Burnett, director of Bitcoin Strategy at Semler Scientific, commented:

“This makes the latest drawdown one of the most significant onchain events in Bitcoin’s history.”

Price volatility and recent trends

In the span of just ten days, bitcoin fell by 23%, losing over $24,000 and bottoming near $82,000 before rebounding to $89,000.

While a trend recovery has not yet been confirmed, analysts suggest that the current risk-adjusted landscape may be more attractive for forward returns.

For more technical analysis and market signal charts, see the Bitcoin Sharpe ratio chart and the price drawdown from all-time high.