The following is an excerpt from a recent issue of Bitcoin Magazine Pro, Bitcoin Magazine premium markets newsletter. To be among the first to receive these statistics and other on-chain bitcoin market analysis straight to your inbox, subscribe now.
Peak Pain: Still Ahead of Us
The word of the day is pain. That was Federal Reserve Chairman Jerome Powell’s favorite quote at the September Federal Open Market Committee meeting. A simple economic release and subsequent press conference sent the market into a period of mild panic with rates rising, volatility rising and bitcoin stocks selling off. The S&P 500 lost a critical support level of 3850, bitcoin was sent back to local lows of $18,100 and the 2-year Treasury rose 4.1%.
Even an expected increase of 75 basis points was not enough to turn the markets around as complementary information from the Fed forecasts and Powell’s speech gave risk assets more concern. Powell reiterated many times that the result is more economic pain (job loss, housing market crashes, etc.) to solve the current inflation problem. He cited the lack of disinflation in his favorite measure of “core PCE” (personal consumption expenditures) and reiterated his hawkish speech from Jackson Hole, noting that they won’t stop until the job is done.
It is now do or die for risk assets with the options to see an immediate relief recovery this week or likely a further downside continuation in valuations and prices across the board.
Our thesis here at Bitcoin Magazine Pro, as long-term bitcoin advocates, is that macroeconomic headwinds are in the driver’s seat, and given the price action in global currency and bond markets, the time to final panic is yet to come. We are open and flexible to change this position, but as objective market analysts, we see and report what is in front of us. More on that later.
While on-chain cyclical metrics can be useful for evaluating long-term value buying (or selling) opportunities and Bitcoin’s economic behavior, we’ve highlighted them less over the past few months as we believe they were less relevant for the short-term price. action compared to the current headwinds.
Looking at the history of bitcoin market cycles, when you dive into the chain data, you immediately notice the consistency in which the price of bitcoin falls below its realized price (based on the average cost of all bitcoin according its last move on the chain) during the depths of a bear market. In previous cycles, this has not been a one-time event, but also lasts. We’ve been highlighting for months that this bear market may last longer than most expect and that the duration component is more painful than the percentage decline.
“As the average holder is underwater, most marginal sellers have already sold their holdings, and while further downside is possible, market participants feel that the ‘pain’ is in the form of a extended period of time spent underwater rather than the rapid decline in prices that characterized the beginning of the bear market.” – When will the bear market end? July 11, 2022
The daily BTC/USD exchange rate is set entirely on the margin, and given the growing macroeconomic headwinds, marginal sellers have and will likely continue to dominate marginal buyers until a clear shift in liquidity conditions occurs.
A closer look shows that this long process of capitulation transfers the coins to stronger and better capitalized hands.
For those who see this as the time to grab an undervalued bitcoin for the long term, Realized Market Cap is a surefire chart that shows the growth of bitcoin’s cost base log over time. The cost base has only dropped a maximum of 24.07% from cycle highs and is currently down 12.71%. This is the chart that we think most “non-Bitcoin” investors don’t understand. Even in the “all speculative” bubble that bitcoin is a part of, the network’s cost base increases or decreases marginally despite wild daily exchange rate volatility.