Bitcoin’s short-term realized volatility is currently at multi-year lows at 22% (1 week) and 28% (2 weeks), the lowest volatility since October 2020. according to Glassnode’s on-chain analysis annual summary report.
Futures volumes are similarly subdued and are now exploring multi-year lows. The bitcoin and ethereum markets are currently trading between $9.5 billion and $10.5 billion per day, with similar volumes. This shows the massive impact of tightening liquidity, widespread deleveraging, and damage to many lending and exchanges in the space.
Open interest in the futures market has retraced significantly following the implosion of FTX. The build-up and unleverage of futures in November had a noticeably more severe impact on Ethereum, likely a fallout from the conclusion of the remaining "merge trades". Ethereum’s open interest has dropped from 4.75% of market capitalization to 3.10%. Bitcoin’s leverage reached its peak one week before the Ethereum market, and has since dropped from 3.46% of the market value to 2.50% in the past month.
The excess liquidity bubble in the era of loose monetary policy in 2020-21 set a record for the total annual realized profit on the chain. Bitcoin investors move funds on-chain, reaping more than $455 billion in annual profits, peaking shortly after an all-time high in November 2021.
Since then, the bear market has dominated and the market has retraced more than $213 billion in realized losses. That equates to 46.8% of the 2020-21 bull market's profits, which is very similar to the relative size of the 2018 bear market, when the market gave back 47.9%.
Notable is the contribution of long-term holders, who achieved the two largest relative loss peaks in history during this cycle. Long-term holder losses peaked at -0.10% of market capitalization per day through November, a size only comparable to the cycle lows of 2015 and 2018. The June sell-off was equally impressive, losing -0.09% of market capitalization per day, with heavy dominance by long-term holders locking in losses of -50% to -80%.
Since 2020. stablecoins have become the cornerstone assets of the industry, with 3 of the current top 6 assets by market capitalization being stablecoins. The total stablecoin supply peaked at $161.5 billion in March 2022. but has since seen massive redemptions of over $14.3 billion.
Since the beginning of this year, both Bitcoin and Ethereum have hit their all-time highs from November last year, a drop of more than 75%. Since May, the Bitcoin market has been continuously hit by massive deleveraging events. This led to a significant credit contraction, many institutional bankruptcies, the unfortunate collapse of a multi-billion dollar Ponzi scheme project (LUNA-UST), and sadly, the case of FTX appears to be a fraud.
2022 is a brutal year, with volatility and trading volumes pushed to multi-year lows as liquidity and speculation dry up. With speculators gone, the supply of long-term Bitcoin holders has been pushed to another all-time peak, and investors appear to be stepping in, buying more and more Bitcoin with each price drop. The Ethereum merger was also successfully executed in September, and stablecoins continue to demonstrate meaningful product-market fit.
The resilience of a decentralized system is built through years of trials and scars from battles, however, these events culminate in the formation of hoarders, the buyers of last resort. After all the challenges in 2022. the digital asset industry is still standing, lessons learned, and Bitcoin blocks continue to be produced.
Whatever happens in 2023. we believe the industry will stand the test of time and we will continue to build the tools and data needed to analyze, research and understand why.
