Is it Time to Back Out from the Bitcoin Bear Market Scenario?


Bitcoin Bitcoin dropped by 10.30% in 24 hours, this plunge has made people more apprehensive

Total crypto market capitalization has plummeted below US$1 trillion today for the first time since February 2021, with Bitcoin and other top altcoins registering record losses. BTC, especially, has begun the week at its 10-month lowest since May 2021. At the time of writing, BTC is struggling to keep itself afloat at the US$24,000 mark, down by 13% from the previous day. Multiple macro-economic factors have contributed to the latest dump. Many investors are now wondering how low BTC can go before there is a change in sentiment and price trajectory for the crypto asset class.

Bitcoin down as much as 17%, fell to as low as US$22,603 on Monday, putting it squarely below the average investor cost base of US$23,500, according to UBS. That means prices have declined enough to test even long-term holders, who up until now in the 2022 drawdown were largely in the green with their investments.

“Bear-market blues have set in among even the most ardent crypto proponents,” said James Malcolm, head of foreign exchange and crypto research at UBS. “Capitulation can come in many forms. Equally, relief too as we are now in full-blown panic mode, and the bar for a hawkish Fed this week is pretty high.”

Bitcoin price plummeted Friday after CPI data from the United States indicated inflation was far from slowing down. The CPI, the most widely used measure of inflation in the United States, is now up 8.6% year-on-year, pushing prices down sharply.

While the recent bearish move has kept some crypto buyers on the sidelines. Has the price crash also increased the chance of a possible Bitcoin rally? Currently, BTC is trading at around US$21,000, with the possibility of further declines. The coin is down more than 17.45% in the past 24 hours.


Bitcoin has Dropped 80% Before

New crypto investors may like to believe that this extraordinary dump creates doubts regarding the ecosystem’s sustainability. However, this has happened at least before.

Bear markets have been brutal for BTC in the past. In the 2014 and 2018 bear markets, BTC dropped more than 80% from its market cycle highs but registered new highs later. For example, in the image below we can see that BTC dropped from nearly US$19,000 to US$3,000 in 2018.

An 80% drop from BTC’s November 2021 high of US$69,000 would be near US$14,000 in this cycle. Therefore, BTC has room to drop even further.


What Should Investors Do?

Market-watchers have been obsessed with figuring out who is getting hurt during this year’s drawdown. Many retail investors and institutions had gotten in just over the past year or two. But, with Monday’s slide, Bitcoin has wiped out all its gains over the past year and is now hovering around December 2020 levels.

The number of anonymous Bitcoin addresses in the money, meaning those that acquired their holdings at prices below today’s, has reached lows not seen since March 2020, which analysts at Bequant say points to “capitulation.” Elsewhere, strategists at Glassnode say the US$20,560 to US$23,600 span is where the market might see a “full-scale capitulation scenario.”

Steve Sosnick, the chief strategist at Interactive Brokers LLC, is watching the US$20,000- US$21,000 range because MicroStrategy, a large Bitcoin holder, might have to offload some of its coins at that point. “We’ve taken out many of the prior support levels that we would have established since the run-up in late 2020,” he said in an interview. “When there’s this idea of a looming potential margin-call driven seller out there, yeah, the low US$20,000, that’s a real line in the sand.”