On Thursday, bitcoin, like the markets in general, suffered a major sell-off, with the price of BTC down 7.87% on the day. AT the context of bitcoin history is relativelynormal movement over the past two years. Capitulation movements to the downside were also much stronger. This is a consequence and short-term reality of an asset being traded during a potential risk reduction as a high-beta risky asset.
Bonds are at their worst everyear-to-date return trajectory as measured by Bloomberg's Global-Aggregate Total Return Index. The credit sell-off and rate hikes have been happening since November 2021, coinciding with the decline of both the NASDAQ-100 index and bitcoin. While bitcoin has held up pretty well against the stock market in its decline lately, they are still moving in tandem and the question now is how far the stock market decline can go.
What has changed this time is thatnow there are more long-term investors and companies in the bitcoin market. Anyone looking at bitcoin from the perspective of multiple market cycles and a decade or more sees what is happening as one of the best opportunities to buy the asset at a discount, as this sell-off is not related to bitcoin’s fundamentals and objective upside potential, but rather to flaws in the existing credit system and the end of the speculative bubble in traditional markets.
The last downward movement was accompanied by a surgelong liquidations to the highest since the price bottomed at $35K in January. Just before the liquidations and sell-off, the annualized perpetual swap funding rate hit new five-month highs and broke above neutral for the first time since December 2021.
In a narrow range from neutral toof negative funding over the last six months, this divergence indicated a possible excessive level of short-term longs. In the current macroeconomic and political situation, it is much easier for longs to be “offside” than it was in October and November 2021.
In terms of on-chain coin spending, there arethere are many signs that we are in a bear market and that the typical capitulation has not happened yet. Over the past seven days, the average on-chain loss was $344 million, about 40% of the chain’s realized losses at the time of the January 2022 and July 2021 lows. Cumulatively, realized 30-day losses reached $9.34 billion in July 2021 and $12.01 billion in January 2022 before the market found a local bottom.
By normalizing these realized gains and losses,by market cap, you can compare the relationship between different market cycles and timeframes. In this context, we have yet to see increased losses relative to market cap compared to any other major capitulation in the history of Bitcoin. This may be due both to the fact that it has yet to play out, or to the fact that the market as a whole is becoming more efficient, leading to softer capitulations and peak profit taking over time.
Along with retaining realized losseson-chain, the realized price (aka cost basis) continues to decline, which is a sign of a bear market. While these thresholds are more subjective, a bullish signal for the Bitcoin market is a sharp acceleration in the 30-day percentage change in the realized price, signaling a new strong influx of capital into the market.
Since the high of July 2021, we have not yet observedsharp capital inflows with a realized price change rate of more than 10%, while the realized price has declined by 0.61% recently. Along with a combination of many other indicators, historically such periods of realized price slowdown have proven to be a good time to accumulate BTC for the long term.
Overall, we have not yet seen short-termbitcoin demand catalysts significant enough for the market to deviate from the influence of larger macroeconomic factors. Our base case is that stock market volatility is not yet at its high this year, the ongoing monetary tightening cycle will continue to weigh on liquidity and the market is looking for a more severe decline. Until we see a reversal in this dynamic or a major external demand shock for bitcoin, we expect further declines.
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