Never in history has it been a time when the Bitcoin prices have fallen below the previous bull market peak. This is a result of the playout of macro as well crypto-specific scenarios.
The sentiment in the space turned sour soon. This situation has many people wondering if we have reached the max pain, i.e., the "bottom."
One way to find out is to compare the past bear market lows to the current situation. First crypto market cycle, BTC hit a high of $32 in June 2011 and then fell to $2 in November of the same year. This accounted for an almost 90% drop in the prices which took about five months to clock in the bottom.
During the second cycle, Bitcoin hit a high of about $1,100 in November 2013 and a cyclical low of $180 in January 2015. This works out to be an 80% drop in the risk asset.
The third market cycle involved Bitcoin reaching a high of $20,000 in December 2017 and falling all the way to $3,200 in December 2018.
This prints an 80% drop in the asset's price. Furthermore, it took nearly a year for Bitcoin to find its bottom.
In 2021, Bitcoin made a high of $69,000 in November. To account for the 80% drop in the previous bear market phases, this time, Bitcoin could drop as low as $13,800. For a bottom-to-check-in, it might take around 5-6 more months for the markets to witness the point of max pain.
It's a bear sign for the crypto markets as the dominance of the dollar index increases.
This indicates that the market player tends to take out profits and stack up cash reserves. Moreover, the rising energy prices have caused inflation to reach 40-year highs. This has led to decreased buying power and less money on investing table.
Observing on-chain activity, capitulation is evident through realized losses, net unrealized profit/loss, and Spent Output Profit Ratio. In the chart below, the red area indicates the Net Unrealized Loss suffered by investors in the crypto markets.
Additionally, miners also have to capitulate in this bear market.
Their cash flows from the mining income have been shrinking,
Surprisingly, miner selling activity has a significantly low impact on Bitcoin's trading prices.
Data suggests that if newly issued minted Bitcoins are sold onto trading markets each day, it would only add to 900 Bitcoins of selling pressure.
This represents 1%-1.5% of total daily volume.
A healthier derivatives market would allow miners more options in potential hedging strategies.
Furthermore, mining companies that have expanded too fast with leveraged balance sheets in recent years are struggling. The cost of running a farm demands vast cash flow and maintenance. The rising Bitcoin price was one of the strongest ways to subside this expense.
This has resulted in forcing them to restructure their operations.