Bitcoin’s short-term Sharpe ratio has fallen to one of the lowest measured levels. This situation presents a picture that generally indicates periods of intense pressure and sales in market history. This deep negativity in the short-term Sharpe ratio indicates that risk-adjusted return has fallen significantly.
Historic Decline in Sharpe Ratio
Michaël van de Poppe, known for his analyzes on cryptocurrencies, stated in his statement on his social media account that Bitcoin’s short-term Sharpe ratio was measured as -38.38. The Sharpe ratio shows how much return an asset provides in return for risk, and a decrease in this ratio to very low levels is considered a worrying development in the market both in the past and today.
Similarities to Past Cycles
Similar extremely negative Sharpe ratio levels were seen in previous market cycles, both in early 2015, in the first months of 2019, and in late 2022. These periods stand out as periods in which long-term investors accumulate savings and significant increases occur in the following months.
It is stated in the charts that such bottom levels are usually followed by strong rises and the market moves upwards again. These periods of time when the market is extremely pessimistic are considered opportunities for some investors.
Difference Between Bitcoin and Gold
After the recent correction movement, the value of Bitcoin decreased significantly compared to gold. This situation shows that there is an imbalance between risky assets and safe havens. Analysts point out that the Sharpe ratio serves as an important signal in such periods. Because this degree of decline in risk-adjusted performance historically coincides with periods when selling pressure approaches its peak and most of the losses are reflected in prices.
Statistics reveal that this level has only been seen in Bitcoin a few times so far, and each time there have been meaningful long-term recoveries.
Michaël van de Poppe made the following assessment on the subject:
The current level observed in Bitcoin’s short-term Sharpe ratio has indicated significant accumulation zones in the past.
The current chart is similar to past cycles, with analysts noting that lows on the price chart are followed by notable uptrends.
While market watchers point out that short-term volatility continues, they note that previously seen Sharpe ratio declines of this magnitude have resulted in year-long bullish periods. Therefore, the current low is in line with historical examples.
