Bitcoin price appears to be positioning for a renewed bullish phase following its positive start to the new year. The main cryptocurrency closed 2025 with a range-bound price performance, not recording a significant movement in the last month of December.
However, under this initial price power, the latest on-chain test reveals that Bitcoin may be at a critical point, where positive price action opposes fundamental market dynamics.
Negative Ratings do not indicate Price Below: Alphractal CEO
Alphractal CEO Joao Wedson recently took to X to explain what a negative Sharpe Ratio could mean for the price of Bitcoin. In context, the Bitcoin Sharpe Ratio is a metric that measures how effectively Bitcoin returns compensate investors for the level of volatility (risk) taken over a period of time.
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A reading above 1 from this metric indicates a healthy market, where investors are getting rewards for their shares. On the other hand, values below 0 usually indicate that the market is high risk, a low return situation. Simply put, Bitcoin investors, in this case, are not successfully rewarded for their donated funds.
As noted in the chart above, the ratio recently dropped below the 0 threshold. Seeing this happen while the price recovers to previous levels, it is clear that there is an inefficiency between the allocation of risk and return.
Wedson continued to share, based on historical data, that Bitcoin usually shows its best performance when its Sharpe Ratio is above zero, especially at levels 1 and above. This positive signal is usually evidence of a consistent balance between risk and reward.
Conversely, negative readings are often associated with long consolidation periods, lackluster price movements, or even cyclical reversals, which provide context to long-term investors about current market volatility.
Historically, these periods have occurred during cooling phases, or before a sentiment reset, rather than market bottoms. By extension, this means that while the downside risk may not be high, positive performance remains limited until market conditions see the right improvement.
Ultimately, Wedson concluded that the current level of the Sharpe Ratio calls for cautious optimism, especially since a decline does not mean the bottom is in.
Bitcoin Price 2026 Outlook
After closing 2025 in the red, the question has been swirling about how the price of Bitcoin will do in the new year. While various decisions are filtering through the crypto community, weighted sentiments suggest that the market leader will continue its struggles in 2026.
The lack of demand growth seems to indicate that BTC may have already entered a bear market, and the bottom is not due until the last quarter of 2026. In fact, the main cryptocurrency may see an extended correction period in the next few months.
At this writing, Bitcoin is valued at $89,886, representing a 1.4% price jump over the previous day.
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Featured image from iStock, chart from TradingView
