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Bitcoin at $87K: risk-reward flips in favor of buyers
Bitcoin’s price action around $87,000 has reignited debate across crypto markets: is this a genuine buying opportunity or merely a transient dead cat bounce? Multiple on-chain indicators and professional metrics are now flashing more attractive risk-versus-reward profiles than we’ve seen in months, prompting renewed interest from traders, investors, and institutions alike.
Sharpe ratio hits multiyear lows — what it means
On-chain analytics provider CryptoQuant reports that Bitcoin’s Sharpe ratio has returned to levels not seen since mid-2023, slipping into a so-called “green” zone below zero. The Sharpe ratio is a classic finance metric used to evaluate risk-adjusted returns. Historically, extended dips into negative Sharpe territory have preceded multi-month trend reversals for BTC, as volatility compresses and return quality improves.
“Bitcoin is not yet signaling trend recovery, but it is signaling that the risk-adjusted landscape is becoming more attractive for forward returns,” CryptoQuant contributor MorenoDV observed. While a low Sharpe ratio doesn’t guarantee a market bottom, it does indicate improving reward potential for buyers if volatility stabilizes and market demand returns.
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Bitcoin Sharpe ratio
Bitcoin Heater and NVT point to oversold conditions
Quantitative fund Capriole Investments’ Bitcoin Heater metric — which tracks heat across perpetuals, futures and options weighted by open interest — is also showing its lowest reading since November 2022. Capriole’s Heater currently sits deep in the green, suggesting relative calm in derivatives markets and an improving setup for potential upside moves.
BTC/USD one-day chart with Bitcoin Heater data
Capriole founder Charles Edwards noted that while headwinds remain, particularly institutional selling, the Heater’s green zone reduces the case for aggressive bearishness in the immediate term. Edwards also highlighted Bitcoin’s dynamic NVT (network value to transactions) ratio as pointing to oversold on-chain valuation relative to transaction activity — another signal many traders watch when assessing medium-term entry points.
Why some traders remain cautious
Not every market veteran is convinced the rally will hold. Veteran trader Peter Brandt described the recovery from the $80,500 lows as a potential “dead cat bounce,” suggesting the move could be a short-lived retracement inside an ongoing downtrend rather than the start of a sustainable bull market.
The primary risks include renewed volatility, prolonged institutional selling, macroeconomic shocks and liquidity drying up in key exchanges. Historically, indicators like Sharpe and Heater often bottom before price troughs, but prices may continue to drift lower before a definitive trend reversal.
How traders can approach $87K: strategy and risk management
For traders and long-term investors considering exposure at current levels, a few practical approaches can help manage risk:
- Dollar-cost averaging: Gradually scale into positions to reduce timing risk in a volatile market.
- Position sizing: Limit allocation per trade so a false breakout or bounce doesn’t erase capital.
- Watch confirmation signals: Look for Sharpe ratio reversal, normalized volatility, higher open interest and improving on-chain activity as green lights.
- Set stop-loss points: Protect downside when markets fail to confirm bullish metrics.
Bottom line
Bitcoin’s move to roughly $87K has rekindled optimism as risk-adjusted metrics turn more favorable. On-chain indicators like the Sharpe ratio, Heater and NVT suggest the market is increasingly attractive for buyers — but they are not bulletproof signals. Traders should balance the improving numbers against persistent macro and institutional risks and use robust risk management when deciding whether to buy the dip.
Source: cointelegraph
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