Market analyst Michaël van de Poppe has identified a significant on-chain metric indicating a possible recovery for Bitcoin. Currently, Bitcoin is consolidating below $70,000, having experienced a 2.38% decline over the past week.
In a post on X dated February 21, van de Poppe expressed optimism about the Bitcoin market, utilizing the historical data of the Bitcoin Sharpe Ratio—a metric that evaluates the excess return Bitcoin generates per unit of volatility. This ratio is known to be cyclical, showing high positivity during bullish phases and dipping into negative territory during prolonged downturns.
According to van de Poppe, the Bitcoin Sharpe Ratio has fallen to -38.38 in the short term, a level historically recognized as a low-risk accumulation zone. He noted that similar drops in the Sharpe Ratio have occurred three times before: early 2015, early 2019, and late 2022. Each of these instances preceded a significant price rally for Bitcoin.
The analyst elaborated that such a drastic decline suggests Bitcoin is currently underperforming in terms of risk-to-reward ratio, marking an optimal entry point for investors. Over the last five months, Bitcoin has faced a steep bear market, with a total decline of 45.86% from its all-time high in October. In February alone, BTC prices have plummeted by over 23%, reaching lows of $60,000 at the start of the month.
Moreover, van de Poppe”s analysis points out that this recent downturn has adversely affected the Bitcoin to Gold ratio, potentially creating a favorable market opportunity due to the resulting asset imbalance. Historical price trends in similar situations have led van de Poppe to describe this current Sharpe Ratio condition as “super bullish.”
As of now, Bitcoin is trading at $68,299, reflecting a modest 0.72% gain within the last day. However, the daily trading volume has witnessed a significant decline, down 50.04%, totaling $19.15 billion. Market analyst KillaXBT forecasts that Bitcoin may retrace to approximately $67,800 on Monday, aiming to fill the CME gap established over the weekend. Notably, Bitcoin has a strong track record of filling 96% of CME gaps observed since 2022 within two weeks.
