[Analysis] “Bitcoin’s risk-adjusted returns hit a 4-year low…selling pressure ‘exhausted’”

An analysis has found that Bitcoin (BTC)’s risk-adjusted returns have recently fallen to their lowest level in four years.

MorenoDV, a CryptoQuant contributor, said via CryptoQuant on the 18th (local time) that “Bitcoin’s current short-term ‘Sharpe ratio’ is -38.38,” adding that it “almost exactly matches the cycle lows at the end of 2015, 2019 and 2022.”

The Sharpe ratio is an indicator that measures a given cryptocurrency’s risk-adjusted returns. MorenoDV noted that “a negative short-term reading does not simply mean weak returns; it indicates a phase where drawdowns are fast and steep, imposing heavy psychological stress on investors,” pointing to it as “the point at which most investors’ capitulation occurs.”

MorenoDV emphasized that “Bitcoin is a structurally cyclical asset driven by supply shocks from the halving, liquidity cycles and extreme investor sentiment.” He added that “historically, when the Sharpe ratio reached extreme lows, it was not the start of a prolonged bear market but a phase in which selling pressure was being exhausted,” and said that “after every past episode of extreme negatives, a strong rebound followed along with new all-time highs (ATH).”

He also mentioned macroeconomic variables. MorenoDV said, “If a macro liquidity shock occurs, the key risk is that the bottoming phase could last longer,” adding that “even so, Sharpe-ratio lows are among the market’s most reliable buy signals.”