Do we live in a bear or bull market? Although opinions differ, it feels like one. All markets are down, across the globe. The bitcoin and cryptocurrency ones are not an exception. If you’ve been paying attention, you know how all of this happened, but a refresher course wouldn’t hurt. Using ARK Invest’s Bitcoin Monthly: The Latest report as a guide, let’s go through the tragic sequence of events and evaluate the bitcoin market as it stands.
According to ARK the path to bear markets was like this:
“Beginning with the Terra collapse in early May, contagion spread to major crypto lenders including Blockfi, Celsius, Babel, Voyager, CoinFlex, contributing to the insolvency of the once highly-respected hedge fund, Three Arrows Capital (3AC). Since Terra’s collapse, total crypto market capitalization has dropped ~$640 billion.”
There does seem to be some light at end of tunnel. “Promisingly, however, recent fallout (Babel, Voyager, CoinFlex, Finblox) appears lower in magnitude compared to Terra, Celsius, and 3AC.” That doesn’t mean the end of the bear market is near, nor that capitulation is already over. Particularly if you are in the Mt. Gox victims are recognizedThe rumored 150K BTC.
First, let’s follow ARK as they analyze two of the main players in this drama. Then, let’s check the stats of the bitcoin market to see if we can find signs and clues that point out to the end of the capitulation stage. SPOILER ALERT! This one is still up in the air. There are some signs that point towards an early end and others that indicate further downside. Aren’t bear markets fun?
Celsius and The Bear Market
Terra’s fall caused the earth to shake. In an effort to protect the UST peg at the dollar, nearly the entire 80K BTC reserve of the Luna Foundation Guard was sold. This event could’ve been the catalyst for the bear market. But the worst was still to come. Terra exposed many once respected institutions through the Anchor protocol. The UST collapse resulted in them all falling into an ever-increasing death spiral.
According to ARK, “Celsius froze withdrawals on June 12th in response to significant outflows. Its DeFi debt outstanding is $631 million but the magnitude of its nonDeFi exposure is unclear.” There was still hope for its clients, as The company took out several loans. However, Celsius For Chapter 11 Bankruptcy can leave them high and dry.
How do you know what happens to your coins when they are deposited to trusted lending platforms? pic.twitter.com/RQh7jfrrNZ
— softsimon (@softsimon_) July 13, 2022
Andrey Diyakonov is the Chief Commercial Officer of Choise.com and analyzed NewsBTC.
“To put things into perspective, we need to turn it upside down, and ask, how much of the recent price action on the markets was influenced by or outright created by Celsius’ actions? It is always what goes around that comes around. It’s so much more ironic given those credible reports that Celsius withdrawals were among those that sent UST and Terra position down the rabbit hole to find out where the bottom is.”
Our team This particular claim was covered and the company’s response.
Three Arrows Capital and The Death Spiral
Then, there was “Three Arrows Capital (3AC), a highly regarded crypto hedge fund reportedly managing $18 billion at its peak, appears to be insolvent after taking on too much leverage.” That’s according to ARK, who also says, “Seemingly, 3AC took on excess leverage to try and recover the losses. Its creditors included major players in the industry like Genesis, BlockFi, Voyager, and FTX.”
All these companies, with the exception of FTX appear to be in danger of extinction.
BTC price chart 07/15/2022 at Velocity. Source: BTC/USD tradingview.com| Source: BTC/USD on TradingView.com
Are We Just Starting or Nearing the End of The Bear Market?
What is the bottom? There are many opinions. In a section titled “Market Contagion Sets Bitcoin Into Capitulation,” ARK analyzes all of the indicators and can’t reach a final conclusion. These numbers are quite interesting.
- “Down 70% from its all-time high, bitcoin is trading at or below some of its most important levels: its 200-week moving average, the general cost basis of the market (realized price), the cost bases of long-term (LTH) and short-term holders (STH), and its 2017 peak.”
This “suggests extremely oversold conditions,” which is a great sign. However…
- “Historically, global bottoms occur when the MVRV of short-term holders exceeds the MVRV of long-term holders. That condition has not been met, suggesting the potential for more downside.”
The “condition has not been met,” but it’s close. It’s very close.
- “This month, miners generated revenues only 45% of that for the last twelve months, breaching a threshold that usually correlates with market bottoms.”
Miners who didn’t practice proper risk management have been Selling at current low prices. Miners who know what they’re doing will keep holding until we come out of the bear market. The question is, how many companies are in the first group and haven’t sold just yet?
- “Net realized losses in bitcoin recently reached a 2-year low, breaching 0.5% for only the fourth time since 2013.”
This has historically meant that capitulation was over. But is that true?
- “Bitcoin’s net unrealized loss has hit a 3-year low, highlighting that its current market value is nearly 17% lower than that of its aggregate cost basis. Historically, global bottoms have formed when losses hit 25%+.”
If we’re going to reach 25%, that means there’s still a long way to go.
Are we in the midst of a bear market? It is not clear what the data means. However, capitulation appears to be at an end. This would mark the beginning of the right path.
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