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29 Nov 2022

Zooming out

BTC’s bear market has now lasted at lengths comparable to the bear markets of 2014-15 and 2018. This cycle has for now seen a max drawdown of 77% in BTC from peak to trough, with the current bottom occurring 376 days after the peak of November 10, 2021.
drawdown.svg
Source: Tradingview (Bitstamp)
BTC’s bear market has now lasted at lengths comparable to the bear markets of 2014-15 and 2018. This cycle has for now seen a max drawdown of 77% in BTC from peak to trough, with the current bottom occurring 376 days after the peak of November 10, 2021. In the 2014 bear market, BTC’s peak-to-trough drawdown of 85% lasted for 407 days, while the 2018 top to bottom of 84% lasted for 364 days. Thus, while the current drawdown duration has been at comparable lengths to previous cycles, the depths are higher for now. While history rarely repeats, BTC’s cycle patterns are interesting to study. Periods of BTC strength are affiliated with massive hype, leading to bad risk management and massively painful drawdowns as market conditions sober. Identifying bottoms in BTC is challenging, as the market is largely driven by psychology, with few prominent fundamental drivers. Fundamental drivers tend to lead the early stage bull market stages, i.e., the Silk Road adoption in 2013, the ICO wave in 2017, and the institutional wave in the wake of heightened inflation expectations in 2020. Bottoms emerge after an influx of forced selling, with prices being supported by determined buyers seeking to accumulate at suppressed prices. These periods have previously been long-lasting. After bottoming in 2018, BTC spent 120 days in a very flat environment, whereas the 2015 bottom saw 270 days of no material activity. Purely based on previous cycle patterns, investors should thus brace for slow days in the market whenever BTC bottoms.
New miner capitulation?
Miners are notorious beneficiaries of market strength while being similarly exposed to distressing conditions during market weakness. Miner capitulations are the name of the game in BTC cycles. Earlier this fall, we argued that a miner capitulation ala 2018 is highly unlikely. We reassess and clarify our view in light of recent events.
hashrate
Preview
Source: Blockchain.com
The hashrate has declined substantially in the last week, and miners are selling more aggressively. The declining BTC prices is likely to cause pain for indebted miners. Nonetheless, we believe that a miner capitulation will have a negligible impact on BTC prices, in contrast to what we saw in 2018. The substantial selling in May and June occurred on top of more sizeable selling from Celsius, 3AC, and their counterparties. The miner selling in May and June also reduced the impact of new rounds of miner selling pressure today. Still, bitcoin miners will likely experience a very challenging period ahead.
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