Key Takeaways

• The current Bitcoin bear market is very similar in terms of on-chain fundamentals compared to previous bear markets
• However, the degree of “pain” during the previous 3 bear markets was even higher, although “hodling mentality” among Bitcoin investors is very strong in this cycle and short-term investors have mostly exited the market
• Nonetheless, the probability of a Bitcoin cycle bottom remains relatively low based on different statistical models that we estimate

One of the key concerns for investors is when cryptoasset markets and in particular Bitcoin prices will finally reach their bottom in this cycle.

On a positive note, this is already one of the longest bear markets in Bitcoin’s history with 378 days and a -76.6% drawdown if you take the current low marked on the 21st of November 2022. However, we also saw deeper drawdowns in the last bear markets with even -93% drawdown from peak to trough in the 2011 bear market.

The degree of “pain” during previous bear markets was also higher when looking at the percentage of supply, addresses or entities in profit which was also lower in previous bear markets than in the current bear market. 

On the other hand, the degree to which short-term hodlers/”weak hands”/”tourists” have been squeezed out of the market in this cycle is unprecedented which is already indicative of a cycle bottom. This is apparent in the realized Cap HODL Wave of Coins < 3 months holding period as well as the supply last active +1 years ago. More than two thirds of supply hasn’t moved in over a year. In general, “hodling mentaility” among Bitcoin investors is very strong in this cycle and short-term investors have mostly exited the market.

We have combined an array of on-chain fundamentals and valuation metrics into a “Bitcoin Bottom Checklist”, where we look at critical indicators during the last three Bitcoin cycle bottoms and compare them to the current environment:

In the latest Crypto Market Espresso (12/11/2022), we wrote the following:

“In combination with “fire-sale” valuations, we think that there is an increasing probability of a cyclical bottom in Bitcoin and cryptoassets in general.”

We wanted to provide more transparency to our investors and readers and paint more color around this question.

In fact, we observed an increase in our bottom probabilities the day FTX collapsed on the 9th of November. However, in general, the probability of a Bitcoin cycle bottom remains relatively low based on different statistical models that we have estimated.

In order to arrive at this assessment, we have used the above mentioned variables and estimated four different kinds of statistical classification models, namely “random forest”, “conditional tree”, “probit” and “logit”-model. 

That way, we don’t need to depend on one type of model only and can look at on-chain fundamentals from different angles. These models also help us in assessing which variables are more important than others when it comes to identifying Bitcoin bottoms historically.

This is how our estimated probabilities look like:

Notice the latest spike in Bitcoin bottom probability o around ~12% on the 9th of November – the day FTX collapsed.

All in all, although the probability of a Bitcoin bottom has increased lately based on the random forest model, the overall probability remains relatively low.  

We will monitor these developments closely and will inform our investors and readers as soon as we notice a significant change. 

In the future, you will also find the above mentioned Bitcoin bottom probabilities in our monthly “Crypto Market Intelligence” report.

Hope you will find them useful. 

Stay humble and stack Sats,

André

About Deutsche Digital Assets

---