Summary Of The Contagion Event That Brought On The Bear Market
15 Luglio 2022 - 2:00PM
NEWSBTC
Are we in a bear market? Opinions vary, but it certainly feels like
one. Markets across the board and across the world are in the red,
and the bitcoin and crypto ones are no exception. If you’ve been
paying attention, you know how all of this happened, but a
refresher course wouldn’t hurt. Using ARK Invest’s latest Bitcoin
Monthly report as a guide, let’s go through the tragic sequence of
events and evaluate the bitcoin market as it stands. According to
ARK, the road to the bear market went like this: “Beginning
with the Terra collapse in early May, contagion spread to major
crypto lenders including Blockfi, Celsius, Babel, Voyager,
CoinFlex, contributing to the insolvency of the once
highly-respected hedge fund, Three Arrows Capital (3AC). Since
Terra’s collapse, total crypto market capitalization has dropped
~$640 billion.” Nevertheless, there seems to be a light at the end
of the tunnel. “Promisingly, however, recent fallout (Babel,
Voyager, CoinFlex, Finblox) appears lower in magnitude compared to
Terra, Celsius, and 3AC.” That doesn’t mean the end of the bear
market is near, nor that capitulation is already over. Especially
if the Mt. Gox victims receive the rumored 150K BTC. First, let’s
follow ARK as they analyze two of the main players in this drama.
Then, let’s check the stats of the bitcoin market to see if we can
find signs and clues that point out to the end of the capitulation
stage. SPOILER ALERT: The jury is still out on that one. Some signs
point to an early end, others to further downside. Aren’t bear
markets fun? Celsius And The Bear Market When Terra fell, the earth
trembled. The Luna Foundation Guard sold nearly all of their 80K
BTC reserve trying to defend the UST peg to the dollar. This event
could’ve been the catalyst for the bear market. The worst was yet
to come, though. Several once-respected institutions were heavily
exposed to Terra through its Anchor protocol, and the UST collapse
sent them all into a still ongoing death spiral. According to
ARK, “Celsius froze withdrawals on June 12th in response to
significant outflows. Its DeFi debt outstanding is $631 million but
the magnitude of its nonDeFi exposure is unclear.” There was still
hope for its clients, as the company paid several loans. However,
Celsius filed for Chapter 11 bankruptcy, leaving them all high and
dry. What really happens to the coins you deposit to reputable
lending platforms. pic.twitter.com/RQh7jfrrNZ — softsimon
(@softsimon_) July 13, 2022 The Chief Commercial Officer at
Choise.com, Andrey Diyakonov, analyzed the situation for NewsBTC:
“To put things into perspective, we need to turn it upside down,
and ask, how much of the recent price action on the markets was
influenced by or outright created by Celsius’ actions? What goes
around always comes around. It’s so much more ironic given those
credible reports that Celsius withdrawals were among those that
sent UST and Terra position down the rabbit hole to find out where
the bottom is.” Our team covered that particular claim and the
company’s response. Three Arrows Capital And The Death Spiral Then,
there was “Three Arrows Capital (3AC), a highly regarded crypto
hedge fund reportedly managing $18 billion at its peak, appears to
be insolvent after taking on too much leverage.” That’s according
to ARK, who also says, “Seemingly, 3AC took on excess leverage to
try and recover the losses. Its creditors included major players in
the industry like Genesis, BlockFi, Voyager, and FTX.” All of those
companies except FTX seem to be counting down to extinction.
BTC price chart for 07/15/2022 on Velocity | Source: BTC/USD on
TradingView.com Is The Bear Market Just Beginning Or About To End?
Is the bottom in? Opinions vary. In a section titled “Market
Contagion Sets Bitcoin Into Capitulation,” ARK analyzes all of the
indicators and can’t reach a final conclusion. The numbers are
extremely interesting, though. “Down 70% from its all-time high,
bitcoin is trading at or below some of its most important levels:
its 200-week moving average, the general cost basis of the market
(realized price), the cost bases of long-term (LTH) and short-term
holders (STH), and its 2017 peak.” This “suggests extremely
oversold conditions,” which is a great sign. However…
“Historically, global bottoms occur when the MVRV of short-term
holders exceeds the MVRV of long-term holders. That condition has
not been met, suggesting the potential for more downside.” The
“condition has not been met,” but it’s close. Very close. “This
month, miners generated revenues only 45% of that for the last
twelve months, breaching a threshold that usually correlates with
market bottoms.” Miners who didn’t practice proper risk management
have been selling at the present low levels. Miners who know what
they’re doing will keep holding until we come out of the bear
market. The question is, how many companies are in the first group
and haven’t sold just yet? “Net realized losses in bitcoin
recently reached a 2-year low, breaching 0.5% for only the fourth
time since 2013.” Historically, this suggests capitulation is over.
Or is it? “Bitcoin’s net unrealized loss has hit a 3-year low,
highlighting that its current market value is nearly 17% lower than
that of its aggregate cost basis. Historically, global bottoms have
formed when losses hit 25%+.” If we’re going to reach 25%, that
means there’s still a long way to go. Is the bear market just
beginning or about to end? The data is unclear. But capitulation
seems to be nearing its end, which would be the first step in the
right direction. Featured Image by Marc-Olivier Jodoin on Unsplash
| Charts by TradingView
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