It has been an almost unprecedented year of extreme events and black swans for the crypto market, and now that 2022 is about to end, analysts are reflecting on lessons learned and trying to identify trends that could indicate bullish price action in 2023 .
The Terra Luna collapse, Capital of the Three Arrows and FTX created a credit crunch, a sharp reduction in capital inflows and an increased threat that other major centralized exchanges could collapse.
Despite the severity of the market downturn, a few bright spots emerged. The data shows that long-term hodlers and smaller portfolios are actively accumulating during this period of low volatility.
Let’s dive into the positive and negative data points.
Low liquidity and heavy losses
When liquidity flooded the market in November 2021, Bitcoin (BTC) the price hit an all-time high and investors made $455 billion in profits. Conversely, as liquidity tightened in what many investors hoped would be the darkest days of the bear market, $213 billion in realized losses led investors to return 46.8% of profits from the peak of the bear market. bull market. The magnitude of the gains versus realized losses is similar to the 2018 bear market, when the gain retraction ratio reached 47.9%.
In the thread below, Cumberland, a major liquidity provider to the crypto industry, highlighted the liquidity challenges facing the market:
There are many sources of concern for market participants – volumes and liquidity have dried up and are, by various measures, at a year low. While this may be a holiday phenomenon, the sentiment is grim –
— Cumberland (@CumberlandSays) December 12, 2022
According to Cumberland, the limited liquidity is the result of large-scale capitulations, leaving bankrupt companies with no leftover coins to sell.
Room sharesAnalysis of weekly fund flows also showed trading volumes hit a new two-year low of $677 million for the week. Low trading volumes are associated with crypto funds from digital assets, further hampering upside potential.
Historically, centralized exchanges (CEX) have been a source of fiat integration that helps bring more capital into the crypto asset space. Due to regulatory concerns and CEX fearsbringing in new funds has become a challenge.
Although the above data is very bearish, the market also has data points that may indicate a reversal.
Minimal improvements in investor sentiment appear
While traders are hoping for a positive Federal Reserve meeting which will reverse the short-term downtrend, there are data points on the channel showing that sentiment is making some marginal improvements.
CoinShares states that even with CEX fears and lower volumes, inflows are improving:
“Bitcoin has seen inflows totaling $17 million, sentiment has steadily improved since mid-November with inflows since then now totaling $108 million.”
While these numbers aren’t groundbreaking, Bitcoin’s low volatility provides investors with the ability to average the dollar cost and wait for a potential trend reversal. Current volatility is at multi-year lows for Bitcoin, reaching numbers last seen in October 2020.
Record lows in volatility are associated with a new all-time high in the cohort of long-term Bitcoin hodlers. Even as the price of BTC remains in a downtrend, 72.3% of all Bitcoin supply in circulation is now in the hands of long-term hodlers.
Glassnode notes that the data shows:
“The near-linear upward trend in this metric is a reflection of the heavy coin accumulation that occurred in June and July 2022, immediately following the 3AC-inspired deleveraging event and the defaulting lenders in the space. “
Adding to this perspective, former BitMEX CEO Arthur Hayes believes that Bitcoin has bottomed out after a handful of bankruptcies have driven irresponsible entities out of space.
Although the rise in sentiment and inflows from institutional investors is not large enough to trigger a trend reversal, the positive data points show some signs of recovery.
The views, thoughts and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.