Bitcoin’s risk-adjusted return has become a subject of debate again. According to CryptoQuant data, BTC’s Sharpe Ratio decreased to negative, indicating that the risk-return balance, which fund managers closely monitor, does not produce a satisfactory premium despite sharp fluctuations. While Bitcoin retreated to around $90,000 after reaching over $120,000 in early October, volatility remained high, further compressing risk-adjusted performance. Although some commentators on social media read the negative value as a “bottom sign,” the metric reflects current market conditions, not future direction.
Sharpe Ratio Turned Negative in Bitcoin
According to the measurement shared by CryptoQuant, Bitcoin’s Sharpe Ratio turned negative, showing that the “additional return” above risk-free returns such as US Treasury bonds is inadequate compared to volatility. Commonly used in fund management, Sharpe measures how much the investment is rewarded for the volatility it undertakes; A negative value indicates an equilibrium in which the risk is not rewarded.
Market behavior is also consistent with the picture: Sharp intraday oscillations and uneven recoveries could not permanently lift the yield. Although prices remained significantly below record levels, high volatility continued to suppress risk-adjusted returns.
What Does Negative Sharpe Say and What Does It Not Say?
Negative Sharpe stands out as a signal seen in the most difficult periods of some bear markets. In the past, the metric remained negative for months towards the end of 2018; Prices also remained in the low band for a long time. Similarly, in 2022, the Sharpe Ratio remained weak throughout the period marked by leverage-induced solutions and forced sales, and the “negative condition” could persist even after the price decline slowed.
An analyst on CryptoQuant said that Sharpe did not capture the bottoms to the millimeter; However, he emphasized that the risk-return balance has historically reset to levels seen before major movements. In the same evaluation, the market has an “oversold” character and the risk-adjusted picture may seem more favorable in long-term positioning; However, it was stated that this does not mean that the price cannot go lower.
The main thing traders usually look at is whether the metric is making a steady recovery back into positive territory after prolonged weakness. Such a reversal may indicate a phase in which earnings begin to exceed volatility and risk-return dynamics improve. In the current chart, while Bitcoin is hovering around $90,000, it has exhibited unusual “sawtooth” movements throughout the week; In addition, the weak performance image was maintained against gold, bonds and global technology stocks.
