Bitcoin Sharpe Ratio Warning: Market Risks Are Increasing, Is a Turning Point Near?

Bitcoin’s Sharpe ratio is a key indicator measuring risk-adjusted returns. It has fallen into negative territory and reached levels similar to the market bottoms of 2018 and 2022. Data shows that when this ratio is extremely low or negative, it typically indicates that market volatility risk faced by investors is disproportionate to the returns they are receiving.

As of February 10, Bitcoin’s price hovered narrowly around the $70,000 mark, with a slight 0.45% increase over 24 hours. Meanwhile, the Crypto Fear & Greed Index has dropped to a historic low of 7, indicating an “extreme fear” market sentiment.

Indicator Analysis

The Sharpe ratio, introduced by Nobel laureate William Sharpe, is a core tool for evaluating an asset’s risk-adjusted performance. Its calculation involves subtracting the risk-free rate from the expected return of the asset and dividing by the standard deviation of the asset’s returns.

A high Sharpe ratio suggests that investors are earning higher returns per unit of risk taken, while low or negative values indicate an imbalance between risk and reward.

In the current Bitcoin market, the Sharpe ratio has dipped into negative territory, sending a clear signal: investors are enduring high market volatility risk, but the returns do not match this level of risk.

According to CryptoQuant data, Bitcoin’s current Sharpe ratio has fallen to levels similar to those during the 2018-2019 and 2022 market crashes, reflecting weak risk-adjusted performance.

Market Status

As of February 10, Bitcoin’s price fluctuated between $68,200 and $71,104. On the 4-hour chart, Bitcoin found quick support after falling to around $68,200, with a noticeable volume surge following the US stock market open.

Compared to the recent low of $67,288, the market shows a pattern of gradually rising lows, indicating that the decline is not driven by panic selling but by ongoing accumulation, with the bottom structure being gradually solidified.

Despite a technical rebound, the continued decline of the Sharpe ratio exposes underlying market issues. Currently, Bitcoin has retreated from its all-time high of over $120,000 in October 2025 to around $90,000, yet market volatility remains high.

Historical Comparison and Cycle Patterns

Historical data offers important perspectives on the current situation. The Bitcoin Sharpe ratio experienced significant declines at the 2018 bear market bottom and during the 2022 market collapse.

Darkfost, in CryptoQuant analysis, pointed out that the current extremely low Sharpe ratio resembles the final stages of past bear markets.

Reviewing the 2022 cycle, after Bitcoin’s price dropped over 50% from its all-time high, the Sharpe ratio also fell into negative territory. This was followed by several months of consolidation, eventually leading to a new upward trend in early 2023.

Notably, historical data shows that this indicator can remain negative for months after sharp price declines, so it should not be viewed as an exact bottom signal on its own.

Potential Influencing Factors

Market analysts highlight multiple pressures currently at play. Macroeconomic uncertainty, regulatory changes, and sentiment in traditional financial markets all influence cryptocurrency performance.

The Federal Reserve’s policy stance is particularly critical. While signs suggest that regulatory frameworks may be established within months, issues related to stablecoin yield distribution remain a major point of contention.

Geopolitical factors also matter. Easing US-Iran tensions have somewhat boosted risk appetite, but ongoing Middle East concerns could at any time impact investor sentiment.

On the technical side, Bitcoin’s Relative Strength Index (RSI) is around 29, indicating strong bearish momentum. Additionally, approximately 46% of Bitcoin supply is currently “underwater,” meaning many holders face unrealized losses.

Market Divergence and Structural Opportunities

In the context of overall market weakness, certain cryptocurrencies demonstrate remarkable resilience. This divergence is not accidental; it reflects differences in fundamentals such as utility, adoption, and capital inflows.

Layer 1 networks like Solana (SOL) continue to lead despite broad market difficulties. SOL’s resilience stems from ongoing developer activity, expanding DeFi applications, and increasing adoption in gaming and real-world asset tokenization.

Avalanche (AVAX) also shows notable resilience, focusing on compliant subnets and institutional integration, attracting capital even amid risk-off sentiment. Tokens related to AI, decentralized storage, and privacy solutions also display significant anti-dip capabilities.

Investor Strategies and Responses

Given the warning signals from the Sharpe ratio, investors should adjust their strategies cautiously. Darkfost suggests two main approaches:

One is gradually increasing risk exposure, aligning with a move toward lower-risk zones. The other is waiting for clear improvement in the Sharpe ratio before entering the market, as a confirmation strategy to ensure safety.

Regardless of the approach, risk management remains crucial. Gate Research Institute’s study of the Turtle Trading system shows that improved strategies—such as incorporating trailing ATR stops and range exclusion mechanisms—significantly enhance robustness and returns in high-volatility crypto environments.

For those seeking automated solutions, Gate’s trading bot services offer systematic market participation. Data shows that the BTCUSDT grid trading bot has achieved a total return of +456.51% since inception.

Institutional Perspective and Market Outlook

From an institutional viewpoint, the current market is complex and volatile. On one hand, Bitcoin spot ETF inflows reached $561.89 million in early February, the highest single-day inflow since mid-January.

On the other hand, sustained accumulation by large institutional investors has yet to materialize. Galaxy Digital notes that while profit-taking among long-term holders has decreased significantly, there is no clear catalyst in sight.

Regulatory prospects remain uncertain. The CLARITY Act, if passed, could serve as a market catalyst, but its likelihood of passing in the coming weeks has diminished. A former chairman of the US House Financial Services Committee predicts that a comprehensive crypto market structure bill may be approved within the next few months.

Investors’ sentiment appears to be shifting toward traditional safe-haven assets like gold and silver, which outperformed Bitcoin in early 2026, indicating a preference for stability amid macroeconomic uncertainty.

Summary

When the warning from the Sharpe ratio on February 10 coincides with technical support at $68,200, the market finds itself at a delicate crossroads. Historical data shows that such extreme readings often precede major market turning points.

Extremely low Sharpe ratios can trigger “capitulation events,” where weaker investors are forced out, paving the way for stronger players to reaccumulate positions. Meanwhile, the open interest in gold tokens has entered the top 20 rankings, reflecting investor preference for safe assets.

The market awaits a clear catalyst—be it regulatory clarity, ongoing institutional inflows, or macroeconomic improvements. Until then, prudence and patience are likely the best strategies to navigate current volatility.