When will the “Grayscale Report” 2022 bear market end?

On October 31, 2008, a message appeared on the Cyberpunk mailing list that read:

“I’m developing a new electronic payment system, completely peer-to-peer, with no intermediaries.”

"Grayscale Report" When will the 2022 bear market end?

A few months later, on January 3, 2009, a man using the pseudonym Satoshi Nakamoto started the Bitcoin network.Thirteen years later, Bitcoin has inspired a whole new industry and a new asset class worth nearly $1 trillion. While Bitcoin has been dubbed “the best performing asset of the decade,” after gaining more than 40 million percent from the start, the journey hasn’t always been smooth.

Illustration 1: Ideal VS Reality

"Grayscale Report" When will the 2022 bear market end?

Born out of the financial crisis and recession in 2008, cryptography has grown from a nine-page white paper about the decentralized web to trillion-dollar industrial innovations such as sustainable energy, finance, entertainment, art, and more.Combined with our perspective on this cycle, uncertainty will continue to hang over the crypto market despite the painful price declines we have experienced. Length, time to peaks and troughs, and recovery times to peaks and troughs, previous all-time highs in each market cycle may indicate that the current market may be similar to previous cycles, leading to continued innovation in the crypto industry to new highs .

Crypto Market Cycle

Like traditional economies and financial markets, crypto has its ebbs and flows. The average crypto market cycle lasts about 4 years or about 1275 days. While methods for defining a crypto market cycle vary, we can quantitatively define a cycle in which the realized price is lower than the market price (i.e. the current trading price of the asset), using the Bitcoin price as an example. Note: We excluded realized price crosses below market prices in March 2021 due to extreme market volatility in response to the COVID-19 pandemic at that time.

Figure 2 Bitcoin Market Cycle: Price VS Realized Price

"Grayscale Report" When will the 2022 bear market end?

Realized price is the sum of all assets capitalized at their purchase price or realized market, divided by the supply of how many positions are in profit or loss.

Realized Price = Realized Total Market Cap / Current Supply

A realized price below the market price means that most assets are held at a price higher than the market price at which they were bought at the time. Conversely, a realized price above the market price means that the asset is held at a lower price than it was purchased. Determining when most assets are above their purchase price helps determine when the market is starting to move out of a bear market and transition into a new cycle (and vice versa).

As of June 13, 2022, Bitcoin’s realized price is below the market price, indicating that we may be officially entering a bear market. In normal mode, some believe that these points in the market cycle may represent the best buying opportunities.The table below shows that Bitcoin’s average price is in the region where realized price < Bitcoin market price.

With only 21 days into this range, we may have about 250 more days to buy compared to previous cycles.

Figure 3: BTC Realized Price

"Grayscale Report" When will the 2022 bear market end?

market cycle data

According to the above framework, the crypto market cycle has taken longer to peak each time. In 2012, the market took 603 days to peak, adding about 180 days to each subsequent cycle, 786 days in 2016, and 952 days to peak in 2020.

From peak to trough, the 2012 and 2016 cycles lasted about 4 years, or 1,290 and 1,257 days in 2012, taking 391 days to drop by 73%, and in 2016 it took 364 days to drop 84%.

In the current 2020 cycle, as of July 12, 2022, we have 1198 days to represent approximately four months remaining in the cycle until the realized price crosses back above the market price. Bitcoin is 222 days below its all-time high, which means we could see another 5-6 months of price declines or sideways moves. Historically, each market bottom appears to be a month earlier.

During the 2012 and 2016 cycles, it took less than three years to return to all-time highs. 1082 days and 1059 days, respectively. After that, it took another year to hit another all-time high.

Figure 4 Cycles

"Grayscale Report" When will the 2022 bear market end?

Compared to the sharp ups and downs of the previous two cycles, the 2020 cycle appears to be longer, fluctuating within the range of all-time highs. This may be due to the growing maturity of crypto, a market that did not exist in previous cycles. Not only because crypto has become easier for retail investors to invest in, but also because of the proliferation of crypto exchange-traded products. For example, Bitcoin and Ethereum ETFs in Brazil, Canada and Europe. They may not have been able to invest in the asset before. Additionally, decentralized applications (DAPPs) are gaining momentum and finding a foothold in decentralized finance, gaming, art, and more.

A brief historical review of the crypto market cycle

From a qualitative standpoint, each cycle marks product and adoption, providing a springboard for the next cycle. Here’s a brief overview of what’s been happening since 2012

2012-2015: The Age of Hackers + the Birth of Ethereum

In 2012, the crypto market consisted almost entirely of Bitcoin. Almost a full year later, in 2013, CoinmarketCap appeared, tracking data on less than 30 coins. Aside from transactions, Bitcoin’s main use is to buy goods online, on sites like Silk Road. At the time, the Silk Road was a major driver of new users on the Bitcoin network, and the largest Bitcoin exchange was Mt.Gox, which dominated most of the world’s Bitcoin transactions.

The main theme of this cycle is new crypto exchanges and wallets. Although the asset is in its infancy, entrepreneurs hope to profit from the deal. However, operations around the custody and management of assets such as Bitcoin did not yet exist, resulting in multiple hacks of centralized systems and the theft of over 1 million Bitcoins.

Many early developments, such as Linode and Bitcoinica, appear to be of little value. The impact on the overall price continued into 2013 as the price of Bitcoin continued to climb.

Figure 5 2012 Cycle – Expansion

"Grayscale Report" When will the 2022 bear market end?

After setbacks including the closure of the Silk Road, China banning banks from processing bitcoin transactions, and the Mt.Gox hack to steal 850,000 bitcoins, to name a few, bitcoin’s price fell the following year About 80%, peaking on December 16, 2017. The Mt.Gox hack was the last and largest exploit, marking the end of the bull phase of the cycle. The slide in prices comes as investor confidence in the asset class falters, as are many newer asset classes. New players leave the industry. Those who stayed went on to build and develop complex asset custody and new cryptographic technologies for centralized entities. Arguably the most important project in the 2012 market downturn was Ethereum.

The birth of Ethereum opened the floodgates to possibilities beyond simply sending and receiving digital assets. Whereas previous innovations featured incremental improvements such as larger blocks and faster blocks, Ethereum introduced the power of “smart contracts” which would allow the creation of advanced applications such as decentralized exchanges, Lending platform, entertainment and on-chain NFTs. This innovation makes it possible to program applications on a decentralized blockchain that provide advanced functionality beyond just transferring tokens. While Ethereum officially launched in 2015, applications created on top of it took several years of bear market construction to gain traction.

2016-2019 ICO Experiments and the Birth of DeFi

During this period, sentiment recovered and Ethereum brought more programmable encryption. Initial Coin Offerings (ICOs) have gained significant traction as a fundraising tool and scam mechanism. Many retail investors collectively invest millions of dollars in tokens to support visions and ultimately unrealizable projects. At the height of excitement, projects can raise more than $10 million in seed funding through websites and unknown teams. Additionally, crypto exchange BitMEX has launched perpetual contracts (PERP)

– Innovative futures products that do not exist in traditional financial markets

– Offers traders a new way to trade with leverage. Trading worthless ICO tokens on leverage only fuels the frenzied price action.

From October 2017 to 2018, macro drivers such as quantitative tightening and trade disputes led to a sell-off in emerging markets and risk assets such as crypto. ICO liquidation also wiped out a significant portion of the market cap.

The total market capitalization of crypto fell from $700 billion to $100 billion, and the ongoing sell-off did not kill the market, albeit painfully. Conversely, Bitcoin’s dominance of the market fell to all-time lows as funds flowed to altcoins and ICO tokens.

Despite the lackluster price performance, many of the core DApps that represent the industry today were launched during this period. For example, automated market maker Uniswap, a concept conceived by ethereum founder Vitalik a year ago, has made permissionless asset exchange more efficient than any previous product. Aave, the lending protocol, was also created during this period, marking one of the first applications to allow depositors to earn interest by borrowing using smart contracts, these protocols extend the utility of Ethereum and, through the adoption of new users, lay the foundation for The foundation of DeFi summer.

Figure 6 Protocol

"Grayscale Report" When will the 2022 bear market end?

These dApps built during the bear market have been an important catalyst for the next cycle of DeFi summer in 2020.

2020-Present: Leverage, Institutions and the DeFi Test

The 2020 market cycle is a story of leverage. Investors were lured and leveraged on the increasingly popular perpetual contracts and the launch of bitcoin futures on the Chicago Mercantile Exchange (CME) as the government braced for the economy in response to the COVID-19 pandemic.

Bitcoin’s initial price peaked at $64,800 on April 14, 2021, but was unfrozen due to expiry of high leverage from perpetual contracts and other derivatives. Funding rates — the periodic payments between traders to bring futures prices in line with spot prices — are showing bullishness, suggesting the bitcoin market is disproportionately long and willing to pay huge fees to maintain their positions. The bullish funding rate environment has persisted for more than six months, with traders continuing to increase leverage on their positions using crypto as collateral. Falling collateral prices, which led to forced sales and liquidations, also caused BTC to drop to $29,000 in the summer of 2021.

Figure 7 BTC perpetual contract interest rate and open interest rate

"Grayscale Report" When will the 2022 bear market end?

In late summer 2021, the market appeared to have learned the lessons of overleveraged trading from its previous experience. When open interest started to rise, funding rates were milder than before. During this period, however, leverage was largely in the hands of CeFi companies and hedge funds. The lack of transparency in the operations of these businesses led to the onset of a second wave, with the wave of leverage starting to fade after the market peaked again at $68,900 on November 10, 2021.

CeFi is a simple and easy way to access DeFi and earn income, with an annualized rate between 5% and 20%. The CeFi platform can provide users with an annualized rate of about 3-8% to use the deposit, which exceeds the advertised rate of return and provides users to capture the difference. It’s relatively easy to do in a market of bright moments.

Importantly, strategies to arbitrage interest rates are often subject to risk from a variety of factors, namely macroeconomic challenges and duration mismatches. When the Fed started raising interest rates due to concerns about inflation and rising prices, prices fell for the second time from their all-time highs and leveraged positions began to loosen. It started with the collapse of the UST, which cost the crypto market more than $35 billion. The Anchor Protocol is an important part of the UST ecosystem and is the main source for generating revenue as it provides about 20% annualized rate in UST.

Another source of revenue used by the CeFi platform is liquidity ETH staking – primarily through Lido Finance. In addition to rumors that the Ethereum merger may be delayed, and caused a wider market panic, the stETH/ETH rate fell from the historical 1:1 to below 0.95, causing a large number of stETH to be liquidated, which further exacerbated the market sell-off.

In addition to CeFi, many institutional trading firms were also severely affected. They participate in Terra, stETH and leveraged trading. Many crypto prime brokers issued loans that ultimately could not be repaid or liquidated, extending the crisis beyond companies that lost money for investors.

Despite tough market conditions, the core DeFi protocols that sparked the growth continued to operate as expected.Unlike their centralized counterparties, Aave, Compound, and MakerDAO still exist, are resilient to the market, maintain their loan-to-value ratios, and don’t take on any bad assets. Uniswap has processed over $42 billion in business as of July 5, 2022

Transaction volume and Metaverse tokens such as AXS, MANA and GALA have outperformed Bitcoin and Ethereum over the same period over the past 30 days.

What’s going on on-chain?

In the evolution of the crypto industry, the price of digital assets represents only one part of the wider ecosystem. The price of Bitcoin has been volatile and during times of market uncertainty, in addition to traditional financial assets, potentially the network continues to function as designed and is expected to handle nearly $18 trillion in fees, with a value of 13 in 2021 as shown in the chart below trillions of dollars. Mexico is the third largest recipient of remittances and is one of many countries where this technology is being used. According to data from Mexico-based crypto exchange Bitso, cross-border remittances increased by 4 times from 2021Q1 to 2022Q1.

Graphical 8 BTC network value

"Grayscale Report" When will the 2022 bear market end?

Smart contracts like Ethereum and Solana can also be used to send money to users who prefer to transfer assets other than Bitcoin, such as stablecoins. Regardless of the blockchain used, assuming the network has strong security, users can securely transfer value to anyone in the world over the Internet, sometimes just for less than the handling costs of traditional remittances.

A 30-day change in net exchange positions, which measures the amount of Bitcoin, on centralized exchanges, June 2022 saw the largest outflow on record, indicating that holders are moving their tokens from exchanges and centralized lending Transfer out of the platform. This suggests that investors may be wary of centrally managed funds for riskier strategies, with lenders potentially facing liquidity issues using user funds. Instead, users appear to be passively choosing to hold their digital assets.

Exhibit 9 BTC: Changes in Exchange Positions (BTC)

"Grayscale Report" When will the 2022 bear market end?

Many of these outflows may be due to investors taking advantage of discounts to increase their positions. The number of wallet addresses held. 001-.01 BTC, 01-.1 BTC, and 1-1 BTC increased sharply to record highs. This marks an interesting shift in market sentiment, with smaller investors historically reducing their positions in times of crisis, in the face of uncertainty — especially after the price of Bitcoin fell from around $20,000 in 2018 scale.

Figure 10 BTC: the balance of small retail investors

"Grayscale Report" When will the 2022 bear market end?

DeFi also had an interesting year. In his 1997 book, Personal Sovereignty, James Dale Davidson predicted: “The proliferation of jurisdiction means experimenting with new ways of enforcing contracts and otherwise ensuring the safety of people and property.”

CeFi companies and hedge funds facing bankruptcy have used a combination of: DeFi protocols like Aave, and centralized lenders to borrow capital. Interestingly, DeFi positions are repaid before central lenders or equity holders. The centralized lending protocol runs autonomously according to the code and is written in the smart contract. For decentralized lending protocols, there is no way to negotiate the terms of a position – if it falls below the loan-to-value ratio, it will be liquidated outright.

The transparency of on-chain activity also gives market participants insight into the positions of these institutions — traditional markets can be more opaque — giving the market time to prepare and adjust for potential liquidations. Overall borrowing on lending platforms such as Aave and MakerDAO remains higher than in early 2022 despite capital outflows due to user debt reduction.

Figure 11 Decentralized lending platform total lending (ETH)

"Grayscale Report" When will the 2022 bear market end?

The largest decentralized exchange, Uniswap, has also seen impressive growth during this market cycle. Founded during the bear market in November 2018, it has grown into a core pillar of the DeFi ecosystem. Research by the Uniswap Foundation and VC Paradigm shows that Uniswap has greater market depth for the ETH/USD and BTC/USD pairs. This is especially impressive because Uniswap has and delivers all the assets being traded and can be traded without transferring or delivering assets until the user keeps it in their own custody. On stablecoin trading pairs, its liquidity is higher than that of centralized exchanges. On the USDC/USDT trading pair, Uniswap’s liquidity is almost 5.5 times that of Binance, the world’s largest exchange.

Figure 12 Market depth vs ETH/USD and ETH/BTC

"Grayscale Report" When will the 2022 bear market end?

Monthly decentralized exchange (DEX) trading volumes remained stable even in volatile market conditions. A year ago in June 2021, DeFi was virtually non-existent, with DEXs processing billions of dollars in transaction volume. As of June 2022, DEXs on Ethereum, such as Uniswap, are trading around $75 billion. DEX volumes in July 2022 were also on par with February 2022, when Ethereum prices were roughly 2.5x higher at around $2,800 and around $1,100 today.

Figure 13 The volume of Ethereum decentralized exchanges

"Grayscale Report" When will the 2022 bear market end?

The creation of Ethereum — a decentralized network like Bitcoin, but with smart contract capabilities — creates endless possibilities. The Metaverse is one of the fastest growing categories in crypto, with over 230 assets valued at over $11 billion according to CoinMarketCap. Axie Infinity, the popular blockchain game based on Ethereum, has more than 778,000 active addresses in the past 30 days. Incumbent companies are also starting to take an interest in the intersection between crypto and gaming entertainment. Gala Games is a blockchain-based game developer that recently formed a partnership with Epic Games, the studio behind Fortnite. Gala and Epic games will provide easy access and exposure to over 194 million users. This could be their first ever blockchain-based video game – a big step forward to move the industry forward.

Another category of the crypto market is decentralized infrastructure. Filecoin, the decentralized file storage network – launched the hyperdrive upgrade in June 2021, resulting in a 10-25x increase in transaction throughput. The graph below shows that after the network upgrade, despite the exponential increase in network usage (daily active transactions). While protocol revenue is important, development does not always depend on it. In the case of Filecoin, this upgrade expands the network to continue to provide users with file storage at a cost of 0.001% of Amazon AWS S3 fees.

Figure 14 Filecoin active transactions

"Grayscale Report" When will the 2022 bear market end?

next

Seasoned crypto investors are no strangers to wild price swings, even against 80% drawdowns in the emerging asset class.We believe the technology that underpins entire industries has the potential to revolutionize every aspect of digital life, from fintech to entertainment. In the 40 years since the emergence of the Internet, there has never been a way to truly own digital assets without using people to operate physical hardware until Bitcoin was born.

It’s easy to overlook how far we’ve come as an industry, but in our view, bad news can be seen as good news for investors.over a long enough time frame. An anonymous hobby project, cryptographer who has been pronounced dead again and again, now provides value to countless industries around the world. Blockchain technology is helping developing countries achieve financial inclusion and equity

Stimulate innovation in financial and cryptographic technology, and push the Internet to a new stage – digitally owned assets and independent of centralized authority.

As of this writing, every category in the crypto industry has gone through this cycle and the ecosystem is stronger than ever. In crypto, we have seen that failure is not the fatal wound of the industry, rather it is a necessary step towards the future. This market cycle provides us with proven DeFi and infrastructure protocols, innovations in scaling solutions, a growing Metaverse industry, and more. Despite falling prices, liquidations, and volatility, the crypto industry will continue to build and innovate, pushing the boundaries of imagination.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/when-will-the-grayscale-report-2022-bear-market-end/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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