Bitcoin’s Sharpe ratio turns negative… “A risk signal, but could also mark a long-term buying window”

Interpretations are diverging over market direction as the 'Sharpe ratio'—a measure of risk-adjusted returns—has turned negative in the Bitcoin (BTC) market. While it is often read as a near-term signal of price weakness, some analysts note that in past cycles it has also coincided with periods when long-term buying opportunities emerged.

According to CoinDoo, a cryptocurrency-focused outlet, on the 16th on-chain analytics firm Alphractal said Bitcoin’s Sharpe ratio has recently fallen into negative territory. The Sharpe ratio divides investment returns by volatility and is used to assess risk-adjusted performance.

In general, a negative reading is interpreted to mean that risk-adjusted profitability has deteriorated. Indeed, historical examples show that whenever Bitcoin’s Sharpe ratio drops below zero, the market has often entered a short-term bearish phase.

Still, some argue that this does not necessarily lead to a prolonged downtrend. Alphractal explained that “based on historical data, there have been many cases where the shift to a negative Sharpe ratio overlapped with key long-term buying zones.” In other words, prices may continue to decline in the near term, but for long-term investors it could represent a bottoming process.

Cautionary signals are also appearing in chart structure. Cryptocurrency analyst Merlijn The Trader said Bitcoin is forming a rising pattern around roughly $71,000. He noted that on the two previous occasions, this pattern was followed by a price drop.

According to the analysis, if Bitcoin closes above roughly $74,000, the bearish pattern could be invalidated. Conversely, if it falls below around $68,000, the bearish structure would strengthen, with the next support zone cited near $62,000.

Similar signals are also being observed in on-chain indicators. Analyst Joao Wedson said the “Long-Term Holder MVRV” metric—showing the unrealized profit-and-loss ratio of long-term holders—“is gradually approaching the accumulation zone that appeared at cycle bottoms.”

This indicator measures the average unrealized P&L of long-term holders who have not moved their Bitcoin for more than 155 days. In past cycles, it bottomed in the 0.67–0.78 range, and the next major accumulation zone is suggested as potentially around 0.85.

The outlet reported that “Bitcoin is likely to determine its direction within the roughly $68,000–$74,000 range.” It added that depending on which way the market breaks out of this band, it could determine whether a short-term uptrend resumes or further correction unfolds.