If you had any doubts about the arrival of a bear market, the recent decline in the price of Bitcoin to around $81,000 has made it somewhat believable. A variety of factors have been blamed for the decline, including geopolitical tensions, Microsoft’s poor performance, and a series of liquidations, but it appears that the top cryptocurrency is currently struggling to catch a break.
Interestingly, the recent downturn has not only broken the remnants of the Bitcoin price bullish structure, but also tilted the on-chain framework towards a much more bearish outlook. With both technical and on-chain data being less than optimistic, bears appear to be winning the battle for supremacy in the BTC market.
This indicator changes first, and the BTC price reacts later: Cryptocurrency Founder
In a January 30 post on the The relevant metric here is the Sharpe ratio, which evaluates the risk-adjusted return of a specific cryptocurrency (in this case Bitcoin).
This on-chain metric essentially tracks the amount of profit an investment provides per unit of risk (taking into account that risk is measured by volatility), with higher values indicating better risk-adjusted performance. On the other hand, a negative Sharpe ratio indicates that the return realized from an investment is not proportional to the risk taken.
Wedson wrote in his post about X:
Simply put, the market is taking on more risk for less return.
Source: @joao_wedson on X
In fact, the Bitcoin Sharpe Ratio fell into negative territory just a few days into the new year. However, BTC’s price action still enjoyed incredible form (soaring up to $97,000) even after this change, which has had a less significant impact on on-chain observations.
What’s even more interesting is that the Sharpe ratio is falling and weakening at a faster rate than the Bitcoin price. Historically, these declines have often coincided with prolonged loss of momentum and sideways price movements. In fact, Wedson concluded that risk-adjusted metrics must first change for prices to react positively.
If this happens, the Bitcoin price could fall as low as $65,500.
Wedson predicted a BTC price target if the top cryptocurrency continues its downward trend. In a previous post on
The on-chain expert said that if the market leader falls below the $81,000 level, a capitulation phase similar to the one seen in 2022 could unfold. Based on Fibonacci adjusted market average prices, Wedson identified $65,500 as the next major support level.
During the downtrend on Thursday, January 29, $81,000 came into focus as Bitcoin price approached this level. However, as of this writing, BTC has recovered to over $83,000 and the price is still down nearly 8% on a weekly basis.
The price of BTC on the daily timeframe | Source: BTCUSDT chart on TradingView
Featured image from iStock, chart from TradingView
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