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If there was any doubt in regards to the arrival of the bear market, the recent drop in Bitcoin price to around $81,000 has made it a bit more credible. While various triggers, including geopolitical tensions, Microsoft earnings misses, and liquidation cascades, have been blamed for this decline, the leading cryptocurrency appears to be struggling to catch a break in the mean time.
Interestingly, the recent decline not only destroyed the remnants of the bullish structure of Bitcoin price, but additionally tilted the on-chain framework towards an excellent more pessimistic outlook. As each technical and on-chain data appear less bullish, the bears look like winning the battle for dominance within the BTC market.
This Metric Changes First, BTC Price Reacts Later: Crypto Founders
In a January 30 post on the X platform, Alphractal founder and CEO Joao Wedson revealed that the Bitcoin Sharpe Ratio is falling faster than the BTC price. The relevant indicator here is the Sharpe ratio, which assesses the risk-adjusted returns of a selected cryptocurrency (on this case Bitcoin).
This on-chain metric essentially tracks the quantity of profit an asset offers per unit of risk (with risk measured by volatility), with a high value signaling higher risk-adjusted performance. Meanwhile, a negative Sharpe ratio indicates that the returns earned from an investment will not be commensurate with the danger taken.
Wedson wrote in his post on X:
Simply put, the market takes on more risk for less return.
Source: @joao_wedson on X
In fact, the Bitcoin Sharpe ratio slipped into negative territory a couple of days into the brand new yr. However, BTC's price motion still saw incredible form after this shift, reaching as high as $97,000, making it less necessary to look at on-chain.
What's more interesting is that the Sharpe ratio is falling faster and getting weaker than the Bitcoin price. Historically, this decline has often coincided with prolonged periods of lack of momentum and sideways price movements. In fact, Wedson concluded that risk-adjusted metrics must change before price can respond positively.
In this case, Bitcoin price could fall to $65,500
In case the leading cryptocurrency continues its downward spiral, Wedson has predicted a goal for the BTC price. In an older post
The on-chain expert stated that a 2022-like capitulation phase could occur if the market leader falls below the $81,000 mark. Based on the Fibonacci-adjusted market average price, Wedson identified $65,500 as the subsequent key support level.
$81,000 got here into focus as Bitcoin price approached this level during its decline on Thursday, January twenty ninth. However, as of this writing, BTC has recovered above the $83,000 mark, with the worth still down almost 8% on the weekly timeframe.
The price of BTC within the every day timeframe | Source: BTCUSDT chart on TradingView
Featured image from iStock, chart from TradingView
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