Is this your first bear market rodeo?
If so,
this video takes a look at how things went during the previous bear market in 2018
and how things are playing out during this current crypto meltdown.
Time to learn about the key differences and what you could possibly expect
in this market downturn.
In December of 2017, Bitcoin reached a then all time high value of $19,100,
and over the following year it collapsed to a low of $3.2 thousand,
equivalent to a maximum drawdown of 83%.
And so far, Bitcoin has fallen 73% from its 2021 all time high.
And should it match the drawdown seen in 2017,
it could fall to as low as $11,400.
And likewise, another 11 months of decline could be in the cards to match the 18 month
bear market seen in 2018 and 2019.
And that's it. According to data from Glassnode,
Bitcoin's realized price currently sits at $23,340.
This is the average price of every Bitcoin in the supply valued at the last time
it was spent on chain. Bitcoin only rarely dips below this price and usually
it's near the end of a bear market. At its current value of around $20,000
Bitcoin is trading at roughly 11% discount to its realized price.
It's also trading to a similar discount to its average mining costs.
This could be perceived as an indication that the bottom might not be far.
Moreover, according to Bitcoin's MVR Z-Score, a measure of the difference
between the market value in the realized value of Bitcoin,
Bitcoin can now be considered undervalued but did reach
far lower levels in 2018 and 2020.
Looking at Bitcoin's daily active user base between 2017 and 2021
peaks, the number increased by 10%, going from 966,000 daily active addresses
in December of 2021 to over 1 million addresses in April of 2021.
Comparatively, bitcoin's market cap increased by 300% over the same period,
while the number of daily active addresses has only increased by 10%
between all time highs,
the total number of Bitcoin addresses almost tripled over the same period,
rising from 354 million to 976 million.
And this increase
in both Bitcoin active and total addresses has contributed to the general network
being more widely adopted and traded in this market cycle compared with 2017.
Bitcoin's average daily volume is now close to $5 to $6 billion,
compared with 2017 level of around $0.8 to $0.9 billion.
Now let's take a look at ETH.
Ethereum compared far worse than Bitcoin in the previous bear market.
ETH collapse from an all time high of $1,396 to a low of $86 between
January and December of 2018, equivalent to a 93.8% decline.
And for comparison, Ethereum is currently down 81% from its 2021
all time high after falling from $4812
to $896 over the last seven months.
Although Ethereum's value increased by 244% between its 2018
and 2021, all time highs, the total value locked or TVL
in DeFi - Decentralized Finance - exploded to $66.7 billion.
A missile launch of DeFi apps on Ethereum such as Uniswap, Compound,
Synthetix and Yearn and hitting 184.5 billion
at its highs where majority of activity is concentrated on the Ethereum network.
Meanwhile, the total number of tokens listed on Coinmarketcap climbed
term 1359 to almost 20,000.
If ETH were to match its drawdown in the 2018 bear market of 93.8%,
then it could be set to fall as low as $292.
And to put this into perspective, that would entail a further 67% drop
from its current all time lows of $896.
While current investors may believe that dollar cost averaging into some
or all of the top ten cryptocurrencies will best balance risk,
it should be noted that almost half of 2017 top ten crypto
tokens by market cap failed to recapture their former glory.
Indeed, Bitcoin Cash and NEM, Stellar and IOTA
no longer hold a position among the top ten having fallen as follows.
Bitcoin Cash previously ranked as 4,
now ranked 27, NEM previously ranked 6, now ranked 102.
XLM previously ranked 9, now ranked 24.
IOTA previously ranked 10, now ranked 63.
All four of these cryptocurrencies
failed to break their 2017 all time highs in the 2021 bull run.
Despite seeing a significant rally from their all time lows, as always,
predicting exactly how a bear market will play out is always a tricky
task, particularly given today's sketchy macroeconomic climate.
Nonetheless, it's widely acknowledged that those that make the right moves
now will be the ones that benefit the most if and when the market recovers.