Bitcoin has fallen by 28% since this year, and if seen in terms of the return on risk, performance is weaker than a simple fall in prices. According to the data, its 365-day rolling Sharp ratio fell to about negative 21 at the end of June, the lowest since the end of 2022 and still hovers around negative 20.
Sharp ratio to depth negative
The Sharp ratio is used to measure whether an asset offers a sufficient return on its exposure to fluctuations. The calculation would be based on the total return on the asset over a certain period of time less the no-risk interest rate and would be divided by the price fluctuations of the asset.
When the indicator is positive, indicating that the investor has taken the risk and obtained an additional gain; when the indicator is negative, it means that the return on holding the asset is less than on risk-free. By reference to the current annual rate of return on the United States debt of about 4.45 per cent, Bitco ' s risk-adjusted performance over the past year was significantly behind.
Institutions value the quality of returns more
For professional investors, the attractiveness of assets is judged not only by how much they fall at higher prices, but also by whether returns match fluctuations. The risk-adjusted return is usually even worse for the two assets, even if they fall on the same scale and are more volatile.
This is why the Sharp ratio is widely used. It does not reflect a mere rise or fall, but the real return on the investor per unit of risk. From this perspective, the performance of Bitcoin over the past year was weaker than that of prices themselves.
It's the bottom of the bear market.
However, the extremely low Sharp ratio does not mean only that the market is weak, but may also occur in the phase of being pushed towards release. CryptoQuant data show that similar readings occurred in 2015, 2019 and 2022 and largely corresponded to the bottom of Bear City.
Following these stages, Bitcoin has experienced a reversal of the trend and a sharper rise. Current indicators reflect, on the one hand, poor holding experience over the past year and, on the other hand, market entry into the rare low-risk return range.