Bitcoin Sharpe ratio slides to levels seen in previous market bottoms

The Bitcoin Sharpe ratio, which measures risk/reward potential, is in negative territory that is often associated with the end of bear markets, according to CryptoQuant analyst Darkfost.

“The Sharpe ratio has just entered a particularly interesting zone, one that has historically aligned with the final phases of bear markets,” said the analyst on X on Saturday.

They added, however, that it is not a signal that the bear market is over, “but rather that we are approaching a point where the risk-to-reward profile is becoming extreme.”

The Sharpe ratio has fallen to -10, its lowest level since March 2023, according to CryptoQuant.

The ratio measures Bitcoin performance relative to the risk taken, indicating how much return an investor can expect for each unit of risk. 

Negative ratio signals market turning point

The ratio was lower in late 2022 to early 2023, and late 2018 to early 2019 — both periods marking the depths of the bear market cycle. The metric fell to zero in November 2025 when BTC prices hit a local low of $82,000. 

The analyst said that in practical terms, “the risk associated with investing in BTC remains high relative to the returns recently observed.”

“The ratio is still deteriorating, showing that BTC’s performance is not yet attractive compared to the risk being taken,” they added.  

However, a negative Sharpe ratio usually signals market turning points, they said. 

But this type of dynamic is precisely what tends to appear near market turning zones. We are gradually approaching an area where this trend has historically reversed.

True reversal could be months away

The analyst cautioned that this phase “may last several more months, and BTC could continue correcting before a true reversal takes place.” 

Analysts at 10x Research also expressed caution in a market update on Monday, stating: 

While sentiment and technical indicators are approaching extreme levels, the broader downtrend remains intact. In the absence of a clear catalyst, there is little urgency to step in.

BTC tanked to $60,000 on Friday but recovered to $71,000 by Monday. However, it remains down 44% from its October peak of $126,000, and sentiment remains firmly in bear market territory, analysts say.