The recovery in Bitcoin prices has slowed somewhat since returning to the $91,000 level last week. According to the latest on-chain data, the flagship cryptocurrency appears to be entering a critical zone, which could lead to an even stronger price rebound in the near future.
On-chain data suggests Bitcoin price may bounce back soon
Cryptocurrency analyst Ali Martinez revealed in a November 29 post on social media platform X that Bitcoin prices may be entering a “low risk” zone. According to market experts, this low-risk region often provides investors with solid potential buying opportunities.
This evaluation revolves around the Sharpe Ratio, an on-chain metric that evaluates the risk-adjusted return of a particular crypto asset (in this case, Bitcoin). This metric basically evaluates the amount of return provided by an investment per unit of risk (taking into account that risk is measured by volatility).
A higher Sharpe ratio typically indicates higher risk-adjusted performance, meaning that the asset generates greater returns compared to the risks assumed. On the other hand, if this indicator is trending downward, it means that the coin is in the “low risk zone” and the returns are becoming less important.
Source: @ali_charts on X
As shown in the chart above, the Bitcoin Sharpe Ratio has fallen sharply and is approaching low risk territory (green area). Within this area, market leaders tend to offer lower returns and are often less susceptible to price changes due to unexpected volatility.
Historically, the low-risk zone has been a place where long-term investors “buy the edge” in an attempt to make less risky decisions in the market. Furthermore, as observed in the highlighted chart, Bitcoin price bottomed out when the Sharpe ratio entered the low-risk zone (as seen in late 2022).
Essentially, with the Sharpe ratio hovering around and below the zero threshold, Bitcoin price may be preparing for a market rebound.
Bitcoin Coinbase Premium Gap flashes green again
Another on-chain indicator that lends further credence to the Bitcoin price rebound hypothesis is the Coinbase Premium Gap. This indicator measures the difference between the BTC price on the US-based Coinbase exchange (USD pair) and the global Binance exchange (USDT pair).
Source: @JA_Maartunn on X
When Coinbase’s Premium Gap is positive, as it is now, this indicator means that US-based investors are actively buying Bitcoin. Ultimately, this demand pressure from US investors could provide the necessary float for Bitcoin prices right now.
As of this writing, the price of BTC is around $90,940, reflecting an increase of just 0.4% over the past 24 hours.
The price of BTC on the daily timeframe | Source: BTCUSDT chart on TradingView
Featured image from iStock, chart from TradingView
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