Investors who have persevered through the current crypto market slump and witnessed numerous protocols and investment funds crumble in recent months are pondering the inevitable question, “When will it end?”
Bitcoin (BTC) is once again at a critical juncture as it tests resistance at its 200-week moving average. The challenge now is whether it can break higher despite facing multiple obstacles or if it will retreat back into the familiar range it has been confined to since early June.
The latest newsletter from on-chain market intelligence firm Glassnode points out that the length of the bear market is a key distinction between the current situation and past cycles. Several on-chain metrics now resemble those seen in previous downturns.
Realized price, which calculates the value of all Bitcoins at the price they were purchased divided by the total number of BTC in circulation, has proven to be a reliable indicator of bear market bottoms. Apart from the March 2020 flash crash, Bitcoin has consistently traded below its realized price over prolonged periods during bear markets.
Glassnode noted that historically, bear markets have lasted an average of 197 days below the Realized Price, in contrast to the current market, which has only spent 35 days below this level. This implies that premature predictions of the end of the crypto winter may be unfounded as historical data indicates several more months of sideways price movement before a significant uptrend.
Could the bottom hover around $14,000?
Glassnode points to on-chain pricing models such as Delta price and Balance price as indicators to watch for signaling the end of the bear market’s bleak phase. Previous major bear market bottoms occurred after a brief drop to the Delta price, which currently suggests a potential BTC low near $14,215.
During bear markets, Bitcoin prices typically range between the Balance Price (lower end) and the Realized Price (upper end), which is where the price stands presently.
A clear sign of the conclusion of a bear market is a significant capitulation event that drains the market of the last sellers. Although debates continue about whether such an event has occurred, Glassnode highlighted the on-chain activity during the BTC drop to $17,600 in June as a possible indicator of capitulation.
Following the drop to $17,600, there were 9.216 million BTC with unrealized losses, which has since reduced to 7.68 million BTC after a month of consolidation and a price rally to $21,200. This points to around 8% of the circulating supply changing hands in this price range.
Another sign of capitulation already happening was the considerable volume of BTC registering realized losses between May and July. The collapse of Terra led to a total loss of $27.77 billion, while dropping below the 2017 cycle’s all-time high on June 18 resulted in a realized loss of $35.5 billion.
Is the bear market nearing its end?
The Adjusted Spent Output Profit Ratio (aSOPR), which evaluates the value of outputs when spent compared to when created, suggests that capitulation may have occurred. When profitability declines (marked by blue arrows), investors face significant losses and eventually reach a “final waterfall moment of capitulation,” indicated by red.
For capitulation to be confirmed and accumulation to begin, the aSOPR value would ideally need to recover above 1.0.
The author’s views presented here are personal opinions and may differ from those of Cointelegraph.com. As all investments carry risks, it is advisable to conduct thorough research before making any decisions.
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