Cryptocurrency analytics firm Alphractal has published a new report outlining key market indicators that suggest Bitcoin (BTC) could enter a consolidation phase in the coming weeks.
According to their findings, Bitcoin’s annualized Sharpe Ratio is on the decline, reflecting past market cycles that saw periods of stagnation or correction.
The Sharpe Ratio, a metric used to evaluate risk-adjusted returns, has fallen to levels comparable to those seen in 2023, 2020, 2019, and 2016. With the ratio approaching zero, analysts at Alphractal suggest that Bitcoin offers lower returns per unit of risk. Historically, similar trends have been followed by market pauses, suggesting that a consolidation phase may be the most likely outcome.
Another key indicator flagged by Alphractal is Bitcoin’s one-year percentage change approaching negative territory. Of the four previous instances where this has occurred, three resulted in bearish moves, while one had no significant impact.
This decline in Bitcoin’s historical variation could signal a period of lower volatility and less risk, making the market less attractive for short-term speculative trading. If Bitcoin follows the pattern observed in 2020, it may simply be experiencing a routine consolidation phase. However, if the metric continues its downward trend, the possibility of new lows could increase.
Commenting on the current market outlook, Alphractal CEO Joao Wedson said those expecting increased volatility in the near term may need to be patient.
*This is not investment advice.