Bitcoin has declined 28% year-to-date; from a risk-adjusted return perspective, its performance has been weaker than a simple price drop suggests. Data shows its 365-day rolling Sharpe ratio fell to approximately -21 by the end of June, the lowest level since the end of 2022, and has recently remained near -20.
Sharpe ratio falls into deep negative territory
The Sharpe ratio measures whether an asset generates sufficient returns relative to the risk it carries. It is calculated by subtracting the risk-free rate from the asset’s total return over a given period and then dividing by the asset’s price volatility.
When this metric is positive, it indicates that investors have earned excess returns after taking on risk; when it turns negative, it means the return on holding this asset is lower than that of a risk-free asset. With the current U.S. 10-year Treasury yield at approximately 4.45%, Bitcoin’s risk-adjusted performance over the past year has clearly lagged behind.
Institutions place greater emphasis on the quality of returns.
For professional investors, assessing an asset’s attractiveness isn’t just about how much it has declined from its peak—it’s also about whether the returns justify the volatility. Even if two assets have fallen by the same amount, the one with higher volatility typically has worse risk-adjusted returns.
This is also why the Sharpe ratio is widely used. It doesn’t just reflect price movements, but rather how much return investors actually gain per unit of risk taken. From this perspective, Bitcoin’s performance over the past year has been weaker than its price alone suggests.
Historically, it has corresponded to the bottom of a bear market.
However, an extremely low Sharpe ratio does not only indicate market weakness—it can also occur near the end of a selling pressure phase. CryptoQuant data shows that similar readings appeared in 2015, 2019, and 2022, roughly corresponding to near-term bear market bottoms.
After these phases, Bitcoin has historically experienced trend reversals followed by significant upward movements. Current indicators reflect poor holding experiences over the past year, while also indicating that the market has entered a rare low-risk-reward zone.