Why do we say “2022 is the worst bear market in the history of digital assets”?

The current bear market has dealt a very severe blow to Bitcoin and Ethereum, both of which are currently trading below the peaks of the previous cycle. Many on-chain and market performance metrics reached historically low levels. All investors in 2021-22 are in unrealized losses. Along with this “financial pain,” more and more investors are liquidating their assets, and actual losses are hitting records.

In this article we will use a number of metrics to measure the actual damage to Bitcoin and Ethereum holders, determine the severity of recent sell-off events and capital “capitulation events”, and compare to previous cycles. As a conclusion, we believe that 2022 will be the worst bear market in the history of digital assets.

Bitcoin: Drop size and duration

First, let’s assess the scale and duration of the current Bitcoin decline and compare it to history.

2018-19 was a bear market cycle. We will also analyze two phases of the 2021-22 bear market, one starting on April 14, 2021, many signals that April is the beginning of the bear market, as the sell-off in May 2021 appears to be due to bear market sentiment , as a significant portion of “marginal” buyers and sellers are squeezed out of the market; another from 8 November 2021.

Bear market lows in history are often marked by a -75% to -84% drop in BTC from its peak price. The bear market lasted 260 days in 2019-20 and 410 days in 2015.

The current decline is -73.3% lower than the November 2021 high, lasting between 227 and 435 days, and the current bear market is now well within the scale and duration of historical norms.

Why do we say "2022 is the worst bear market in the history of digital assets"?

The Mayer Multiple is one of the most widely used indicators in technical analysis. The 200-day moving average is often used to mark breakout points between bull/bear markets.

  • A bear market is when the price is below the 200-day moving average;
  • A bull market occurs when the price is above the 200-day moving average.

Bitcoin’s macro price action tends to follow this framework. If we take the 200-day moving average as the long-term average, the Mayer multiple records the price deviation above and below, indicating overbought or oversold conditions, respectively.

For the first time in history, the MM (Mayer Multiple) value for the 2021-22 cycle (0.487) is lower than the previous cycle low (0.511). Of the 4,160 trading days, only 84 (2%) had a closing score below 0.5. The chart below is the price range, corresponding to the green MM value of 0.5, and the number of days historically below that value.

Why do we say "2022 is the worst bear market in the history of digital assets"?

Changes in Bitcoin’s Fundamental Value

Assessing Bitcoin’s realized price through on-chain analytics, capital outflows and realized losses for investors can be measured.

  • The realized price will increase as investors buy the accumulated tokens at lower prices and revalue them higher. This is typical of a bull market and profit-taking;
  • As investors buy the accumulated tokens at higher prices, the realized price will drop, reflecting net capital outflows. This is a classic bear market and market capital capitulation.

It is not uncommon for spot prices to be lower than realized prices, with the current market for the third time in the past six years. The two most recent events were the COVID-19 crisis in March 2020 and the market capitulation event in November 2018, both of which bottomed out the bear market cycle.

Spot prices are currently trading at a discount of 11.3% to actual prices, which means that market participants are currently holding a lower average position than expected.

Why do we say "2022 is the worst bear market in the history of digital assets"?

Next, using the MVRV ratio, comparing the ratio of market value to realized value, it is possible to visually see large deviations away from the mean.

The blue area in the chart below, where the spot price is lower than the realized price. These events accounted for 604 of the 4,160 trading days, equivalent to just 13.9% of the trading days.

Why do we say "2022 is the worst bear market in the history of digital assets"?

The upper level of the realized price is the realized cap, which is the total amount of all tokens (BTC) multiplied by the price stamp at the time of the last transaction. This metric provides a perspective on the intrinsic value stored in the network.

Observing the 30-day position change (Z-Score) that achieves the cap allows you to view the relative monthly capital inflows/outflows of BTC assets on a statistical basis. By this measure, BTC is currently experiencing the largest capital outflow event in history.

Why do we say "2022 is the worst bear market in the history of digital assets"?

lock loss

Assessing the magnitude of losses measures how network participants respond to uncertainty and economic distress.

The Net Realized Profit/Loss metric reflects the net capital flows facilitated by the tokens spent by investors on any given day. The price recently plunged into the $20,000 region, during which it saw the largest daily real loss in U.S. dollars in history. Investors locked in a total of -$4.234 billion in losses in one day, up 22.5% from the record of $3.457 billion set in mid-2021.

Why do we say "2022 is the worst bear market in the history of digital assets"?

As the Bitcoin market matures, the size of potential losses (or profits) in USD will naturally expand as the network grows. Even on a relative basis, that doesn’t lessen the severity of the $4 billion-plus net loss.

A measure of net realized profit/loss in BTC units, effectively regulating the size of the market, currently recording realized losses equivalent to -98566 BTC per day (0.52% of circulating supply). The 2011 bear market and March 2020 saw only two trading days with large realized losses.

Why do we say "2022 is the worst bear market in the history of digital assets"?

Two points:

  • The spot price of BTC is much lower than the realized price, indicating that the average holdings of market investors are lower than expected;
  • The actual spending behavior resulted in a huge historic net loss.

Next, further evidence is provided for quantifying the severity of the 2022 bear market through a normalized view of capital inflows and outflows relative to market size.

Why do we say "2022 is the worst bear market in the history of digital assets"?

Evaluate the ratio between the average monthly loss shifting volume and profit shifting volume. Transfer volume refers to the amount of tokens moved on-chain on any given day.

In the May 2022 crash caused by Luna, the loss ratio reached 2.3 times. Lost trade volume increased by 2.3 times compared to profit amount. Such a one-sided market is uncommon, and such a high proportion of trading volumes in distress suggests that a major investor “capitulation” event is taking place.

Why do we say "2022 is the worst bear market in the history of digital assets"?

Summarizing the 2021-22 Bitcoin bear market, conclude:

  • The price has fallen to -73.3% of the highest price, in line with the upper limit of the previous bear market low;
  • The duration is between 227 and 435 days, depending on when the bear market begins;
  • According to statistics, the market’s realized cap has seen its largest monthly drop in history;
  • The ratio of loss-to-profit transfers has reached an all-time high, meaning extreme pain for the investor community.

The 2021-22 Bitcoin bear market can be judged to be one of the worst in history, both in terms of its severity, depth, and scale of capital outflows and losses realized by investors.

Ethereum State

The price of the second-largest digital asset, ethereum, was not unscathed either, falling below $14,000 in the 2018 cycle. As the two major digital assets trade below their cycle highs.

Like Bitcoin, all investors who bought Ethereum in 2021-22 are currently holding unrealized losses. Much of this downtrend is driven by massive deleveraging in the DeFi ecosystem.

Why do we say "2022 is the worst bear market in the history of digital assets"?

The relative performance and dominance of the two major assets can be compared by comparing the rate of change of Ethereum’s market capitalization with that of Bitcoin.

  • Bitcoin dominance (high value) indicates Bitcoin dominance and an uptrend indicates a general capital cycle in Bitcoin’s favor;
  • Ethereum dominance (low value) indicates ETH dominance, and a downtrend indicates an overall capital cycle in favor of ETH, which is usually accompanied by further performance on the digital asset risk curve.

Ethereum’s dominance has declined significantly since its November 2021 peak and is approaching an inflection point that has historically preceded Bitcoin’s long-term outperformance. This highlights the general state of risk aversion in the market, with Ethereum underperforming and Bitcoin tending to converge.

Why do we say "2022 is the worst bear market in the history of digital assets"?

The graph below is a metric of Ethereum’s captured value per blockchain byte. In theory, the value captured per byte of data on Ethereum, the leading smart contract platform, should increase as network effects improve (and vice versa).

Ethereum currently stores $0.3 per Byte. This is only 2x above the $0.15/Byte floor, which has historically coincided with late bear markets and market lows. Indicates that a further 50% drop is possible if history repeats itself.

Why do we say "2022 is the worst bear market in the history of digital assets"?

ETH is also trading well below its 200-day moving average, with the Mayer multiple hitting 0.37. This means that at the recent lows, ETH was trading 63% below the 200 DMA (difference between parallel lines). Only 1.4% of the sessions saw a large downside deviation.

The Mayer multiple range is 0.6, indicating a downside deviation from the level below which about 10% of ETH trades on all trading days. The 2018 bear market saw ETH stay below that range for 187 days in its worst price action. In the current market, ETH has been below this range since early June and has been below that range for 29 days now.

Why do we say "2022 is the worst bear market in the history of digital assets"?

The Ethereum MVRV ratio is now reaching a negative deviation well below equilibrium, currently indicating that the market is holding a total of -33% unrealized losses. Because investors pull capital up the risk curve, ETH has a longer trading cycle and is lower than the investor’s cost base.

MVRV’s current cycle low is 0.6, and only 277 days in history have recorded a lower value, which equates to 11% of trading history.

Why do we say "2022 is the worst bear market in the history of digital assets"?

By comparison, the average price per staked ETH was $2.4 million, more than double the current spot price. ETH 2.0 stakers have a total unrealized loss of 55%, which is a 22% loss compared to the average performance of ETH investors.

Why do we say "2022 is the worst bear market in the history of digital assets"?

The monthly change in the cap achieved through Ethereum, again indicates the net capital outflow from the network. It can be seen that the recent downward price action was interrupted by two capital “capitulation” events:

  • December 2021: $5.4 billion in futures open interest in deleveraging event closed in liquidation as about $11.6 billion in capital outflows from Ethereum due to coronavirus variants and initial Fed bond drawdown;
  • May-June 2022: The Luna crash and subsequent secondary deleveraging sent ripples across the digital asset ecosystem, resulting in an outflow of about $16 billion in ETH.

May-June 2022 was the largest monthly outflow in the history of the ETH asset.

Why do we say "2022 is the worst bear market in the history of digital assets"?

Ethereum Trade Profitability shows the average profit (positive, green) or loss (negative, red) realized on all trades that day.

In a bear market, the dominance of realized losses can be seen as accompanying price declines. In the current market, the average ETH trader realizes a -16.4% loss on the token they use. Such poor trading profitability was last seen at the depths of the 2018 bear market, when ETH was trading at $84.

Why do we say "2022 is the worst bear market in the history of digital assets"?

Summarizing the 2021-22 Ethereum bear market, conclude:

  • ETH is down -79.5% from its peak price peak, putting this sell-off within the upper bounds of the previous bear market bottom;
  • BTC’s dominance is dominating capital flows, indicating ETH’s further underperformance in the coming months;
  • The value captured by Ethereum per Byte indicates that capital efficiency is deteriorating;
  • The two largest capital destruction events in Ethereum history have occurred in the past 6 months, with a total net outflow of $27.6 billion in Realized Cap;
  • The MVRV of both ETH and ETH 2.0 has dropped significantly, indicating that the average holder of ETH is holding large unrealized losses;
  • Ethereum’s trading profitability continued to decline to January 2019 levels, with investors realizing an average loss of -16% per trade.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/why-do-we-say-2022-is-the-worst-bear-market-in-the-history-of-digital-assets/
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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