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- Bitcoin’s Sharpe ratio is entering a zone historically linked to late bear-market phases.
- Whales are reducing exposure while retail continues buying.
- Technical structure still looks bearish, says CCN analyst.
Bitcoin’s risk-adjusted performance has slid into territory historically associated with the late stages of bear markets, according to CryptoQuant analyst Darkfrost, even as technical analysts and on-chain data suggest the downturn may still have room to run.
The shift comes as Bitcoin continues to struggle after its October all-time high, with large holders reducing exposure while smaller investors continue to buy the dip — a pattern that data provider Santiment said often defines extended bearish cycles.
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A Final Phase Bitcoin Bear Market?
CryptoQuant analyst Darkfrost recently highlighted that Bitcoin’s Sharpe ratio has moved into a range that has “historically aligned with the final phases of bear markets.”
However, he cautioned against treating it as a definitive bottom signal.
“The Sharpe ratio has just entered a particularly interesting zone, one that has historically aligned with the final phases of bear markets,” Darkfrost wrote on X.
“This is not a signal that the bear market is over, but rather that we are approaching a point where the risk-to-reward profile is becoming extreme,” he added.
Darkfrost said the ratio signaled that Bitcoin’s returns have not yet become attractive relative to the risk investors are taking.
“The ratio is still deteriorating, showing that BTC’s performance is not yet attractive compared to the risk being taken,” he wrote.
However, he noted that such dynamics often appear near turning points.
“But this type of dynamic is precisely what tends to appear near market turning zones,” he said, adding that Bitcoin was “gradually approaching an area where this trend has historically reversed.”
Darkfrost also argued that the Sharpe ratio is better interpreted in a contrarian way, reflecting the consequences of price action rather than driving it.
He outlined two possible approaches for investors: building exposure gradually as the ratio approaches historically lower-risk zones, or waiting for the ratio to clearly improve before increasing exposure.
Finally, the analyst warned that the process could take time.
“This phase may last several more months, and BTC could continue correcting before a true reversal takes place,” Darkfrost wrote.
“The signal is structurally constructive, but it needs time to develop. There is no rush.”
Whales Reduce Exposure, Santiment says
Bitcoin’s slide has been accompanied by signs that large holders are distributing, while smaller investors continue accumulating.
Santiment highlighted that this Bitcoin divergence has historically prolonged bear markets, putting the latest downturn to a “clear divergence” between whales selling and retail continuing to buy the dip.
The firm said wallets holding between 10 and 10,000 Bitcoin have reduced their share of total supply.
It added that the shift reflected “a dump of 81,068 BTC in just the past eight days alone.”
At the same time, Santiment said smaller “shrimp” wallets holding less than 0.01 Bitcoin continued increasing their holdings, signaling that retail demand has not fully capitulated.
“Meanwhile, shrimp wallets holding less than 0.01 Bitcoin now hold a 20-month high of 0.249% of the entire $BTC supply,” the firm said.
Santiment argued that the divergence often creates a longer bearish dynamic.
“This combination of key stakeholders selling and retail buying is what historically creates bear cycles,” the firm said.
“Until there is a sign of clear capitulation from the crowd, smart money will continue to gladly sell off their bags and not have any urgency to buy back in until the crowd has decided to move on from crypto,” it added.
Bitcoin Still In Bear Market, Says Analyst
CCN technical analyst Victor Olanrewaju said on Monday that the weekly Bitcoin chart suggests the market is still trading like a bear market that has not fully stabilized.
He said Bitcoin failed to hold above the 0.786 retracement level at $104,592 and has since broken multiple layers of structural support.
“After the October all-time high, Bitcoin’s price has failed to hold above the 0.786 retracement ($104,592), breaking successive structural supports,” he wrote.
Olanrewaju added that Bitcoin’s drop through the 0.5 retracement at $75,494 resembled bear market behavior seen in prior cycles.
“The sharp move down through the 0.5 retracement ($75,494) resembles the bear-market behavior seen in prior cycles,” he noted.
He added that in past bear markets the 200-week EMA often acts as a “magnet” late in drawdowns.
“In past bear markets, the 200-week EMA tends to act as a magnet during late-stage drawdowns, producing volatile bounces but not immediate trend reversals,” he said.
Olanrewaju said a Bitcoin bear market may persist until it can reclaim key levels.
“Until Bitcoin’s price can reclaim the $75,000 zone and hold it as support, rallies are more likely to be bear-market rallies,” he wrote.
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