The following is an excerpt from a recent issue of Bitcoin Magazine Pro, The Bitcoin Magazine Premium Markets Newsletter. To be among the first to get these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.
Maximum Pain: Still Ahead
Pain is the word of the day. That was Federal Reserve Chair Jerome Powell’s favorite port of call at the September Federal Open Market Committee meeting. A simple economic release and the press conference that followed sent the market into a mild panic period with rising interest rates, rising volatility and stock sell-offs followed by Bitcoin. The S&P 500 Index lost a critical support level of 3850, bitcoin was sent back to local lows of $18,100 and 2-year Treasuries rose over 4.1%.
Even an expected 75 basis point hike was not enough to turn markets around as the supplemental information to the Fed’s forecasts and Powell’s speech gave risky assets more cause for concern. Powell reiterated many times that more economic pain (job losses, housing market decline, etc.) will come in order to solve the pending inflation problem. He cited a lack of disinflation in their favorite “core PCE” (personal consumption expenditure) measure and echoed his radical Jackson Hole speech, noting they wouldn’t stop until the job was done.
It is now all or nothing for risky assets with the option of an immediate recovery rally this week or a likely continuation of the downtrend in valuations and prices across the board.
Our thesis here at Bitcoin Magazine Pro, as long-term bullish Bitcoin advocates, is that macro headwinds are in the driver’s seat and the ultimate moment of panic has not yet arrived given price action in global currency and bond markets. We are open-minded and flexible to change that stance, but as objective market analysts, we see and report what lies ahead. More on that later.
on chain
While on-chain cyclical metrics can prove useful in assessing long-term buy (or sell) opportunities and Bitcoin’s economic behavior, we’ve given less emphasis to them over the past several months, believing that they Less relevant to near-term price action versus current macro headwinds.
Looking at the history of bitcoin market cycles, diving into the on-chain data, one immediately notices the consistency in which the bitcoin price falls below its realized price (average cost basis of all bitcoins as per their last movement on the chain) . Depths of a bear market. In previous cycles, this was not a one-off event, but one that is also permanent. We have been emphasizing for months that this bear market may last longer than most expect and that the duration component is more painful than the percentage drawdown.
“With the average holder underwater, most marginal sellers have already sold their holdings and while further downside is possible, market participants perceive an extended period underwater rather than a rapidly falling price as the ‘pain’ of the beginning of the bear market.” – When will the bear market end? July 11, 2022
The daily BTC/USD exchange rate is fully margined and with macro headwinds mounting, marginal sellers have dominated marginal buyers and will likely continue to do so until there is a significant change in liquidity conditions.
A more zoomed out view shows that this lengthy process of surrender is transferring the coins into stronger and better capitalized hands.
Bitcoin price weighted by realized price shows we are in bear territory but still have room below.
For those who see this as the right time to buy long-term undervalued bitcoin, the realized market cap is a reliable chart showing the logarithmic growth of bitcoin’s cost base over time. The cost base is only down a maximum of 24.07% from cycle highs and currently stands at 12.71%. This is the chart that we think most “non-Bitcoin” investors don’t understand. Even in the “speculative-all” bubble that Bitcoin is a part of, the network’s cost basis is constantly rising or falling despite wild daily exchange rate volatility.
The cost base is currently down just 12.71%.
