Published: February 23rd, 2022
Blockchain analysis firm Glassnode has released new figures that paint a bearish picture for Bitcoin (BTC), with on-chain metrics indicating a steady build-up of widespread selling pressure that could break at any time. In an analytics report released this week (the week commencing 21st February 2022), Glassnode said that loyal Bitcoin holders are ‘facing an onslaught of headwinds,’ from a raft of increasingly negative network data.
The company’s data scientists identified general weakness in traditional financial markets as aggravating factors, along with intensifying geopolitical issues. Both, they say, are driving BTC bulls to adopt risk-off sentiment for their digital assets.
'Softness in both crypto and mainstream markets mirror the ongoing risk and uncertainty around the US Federal Reserve rate rises expected in March,' they said. 'Worries about an escalation in the Russia-Ukraine conflict, plus the freedom convoy in Canada and general civil unrest around the world are making traders re-think their current positions.’
In a note accompanying the research, Glassnode said that as the downtrend deepens, the likelihood of an extended bear market will also go up. At the time of writing, Bitcoin’s price was down 46 per cent from the all-time high reached in November 2021, after a 15-week downtrend.
The signal researchers found most compelling was the lack of on-chain activity, a sure sign, they say, of a Bitcoin bear market. The number of active entities and addresses now rests at the lower bound of the BTC bear market threshold, which measures on-chain transactions through periods of down- or side-trending markets.
The current figures point to a decrease in both interest and demand. Glassnode says that nearly 220,000 addresses have been emptied in the past 30 days, indicating a period of users outflows from the Bitcoin blockchain may be underway.
The analysis calculated a short-term holder-realised price of circa USD 47,100, indicating the average loss for BTC holders at current prices is around 21 per cent, more than enough to spur a round of selling.
'The longer crypto traders hang onto their Bitcoin; the further underwater their positions are likely to sink. As BTC loyalists fall deeper into losses, the pressure to spend or sell their coins will only increase.'
Glassnode included several other measures of long- and short-term position value that indicate some 4.6 million BTC is currently underwater. More than half is held by short-term holders, who are statistically more likely to be retail traders and highly motivated to minimise losses.
At the time of writing, Bitcoin's price had dipped by six per cent 0ver the previous 48 hours to trade at USD 36,640. Bitcoin’s price is now within sight of the lowest level reached this year, just above the USD 35,000 level seen on 23rd January.
On the upside, the supply of inactive Bitcoin is nearing record levels, Glassnode says, with some 60 per cent of BTC sitting unspent for more than a year. Glassnode’s data scientists said their studies have shown that many traders who bought Bitcoin in 2017 and 2018 are ‘still in HOLDL mode’, adding that there is still a sizable market of Bitcoin enthusiasts who quietly keep buying, month in and month out, ‘irrespective of what broader markets might be doing.’
The volatility in crypto markets can wrong-foot even the most seasoned veterans. Bull markets can suddenly veer off course and turn into bear markets, wiping out gains and creating frustration.
As the multi-month Bitcoin pullback continues, analysts point to three techniques for getting through an extended bear market.
Dollar-cost averaging (DCA) describes the tactic of purchasing a crypto in steady bunches over time. Doing so enables traders to gain better visibility over the average price they pay over time and see the impact of volatility-induced changes.
A DCA strategy can help de-risk exposure to crypto assets like Bitcoin over time, and currency strategists typically advise waiting until a period of price stability returns before starting.
The aim of a dollar-cost averaging strategy should be to invest in coins or new projects with engaged communities, active development, and a project roadmap that makes clear how it will sustain its future viability.
Staking can be an effective way to boost the long-term value of a crypto portfolio. It eliminates the need for minute-by-minute monitoring of price movements since a staked asset accrues tokens automatically.
Popular layer-1 protocols like including Cardano (ADA), Solana (SOL), and Polygon (MATIC) offer crypto traders the ability to stake their native token and earn a yield in return.
Ether investors can also stake their tokens for Eth2 on Ethereum's beacon chain, though any rewards from staking will have to wait until Eth2 is fully launched, purportedly sometime this year (2022).
Other opportunities for crypto staking include gaming protocols like Illuvium or Axie Infinity and NFT marketplaces such as LooksRare. After conducting research and selecting coins or projects with sound fundamentals, staking can enable a trader to create ‘set and forget’ positions.
After a broad-based downturn begins in any financial market, the first step an investor will take is to look again at current positions and reduce exposure to assets that have demonstrated high volatility.
In crypto, the assets with the biggest ups and downs are often new projects that emerge in hot trending sectors like NFTs and meme coins. Many of the token holders for these assets are newbies rather than veteran investors with patient, long-term strategies.
An excellent way to begin evaluating a crypto portfolio is to review each project's GitHub account. There you can see how much activity has been logged and view the number of developers who are currently at work on the protocol.
A project where progress has stalled, or developer interest has waned may be one to offload when their respective markets start to lose momentum.