Analysis: Bitcoin's 365-Day Sharpe Ratio Drops to Lowest Level Since 2022, Historically Associated with Bear Market Bottom

BlockBeats News, July 6th, according to CryptoQuant data, Bitcoin has cumulatively dropped by about 28% year-to-date. Its 365-day rolling Sharpe Ratio once fell to around -21, the lowest level since the end of 2022, and is currently still close to -20.

The Sharpe Ratio is used to measure an asset's risk-adjusted return performance. A negative value means that investors are taking on higher volatility risk, but the actual return is lower than risk-free assets (such as a 10-year US Treasury bond). Against the current backdrop of a approximately 4.45% US bond yield, this indicator reflects a significant deterioration in Bitcoin's risk-return performance over the past year.

However, CryptoQuant pointed out that, based on historical experience, when the Sharpe Ratio drops to this extreme negative value, it often means that selling pressure in the market is close to exhaustion. Similar levels have appeared near the bear market bottoms in 2015, 2019, and 2022, all of which were followed by Bitcoin starting a new cycle of upward movement.