Grayscale Investment's latest Insight report provides interesting food for thought, pinning the start of the current bear market in June 2022, which could last another 250 days if previous market cycles are to repeat themselves.
Grayscale notes that cryptocurrency markets mimic their conventional counterparts with cyclical movements. Bitcoin (BTC) market cycles conventionally last four years or approximately 1,275 days. The firm defines a cycle when the realized price of BTC moves below the current market price.
Realized price is determined by the sum of all assets at their purchase price divided by the asset's market capitalization. This gives a measure of how many positions are profitable, if at all. Wednesday saw the realized price of BTC cross below market price, which Grayscale identifies as the start of the current bear market.
The firm believes this presents a prime investment opportunity — which is set to last another 250 days from July if the duration of previous cycles repeats itself.
Retracing history, Grayscale highlights the 2012–2015 market cycle with events like the rise and fall of the dark web marketplace Silk Road and the infamous Mt. Gox debacle, which led to the first major bear market. The development of Ethereum, major exchanges and wallet providers led to a gradual climb to the next highs in the market.
2016 to 2019 will be remembered for the boom in initial coin offerings, made possible by smart contract functionality introduced by Ethereum. Much of the capital that flowed into the cryptocurrency ecosystem in late 2017 exited the following year, as the second major bear market began.
The 2020 market cycle will be remembered as a story of leverage. Grayscale notes that investors were enticed to leverage trade with increased government spending during the COVID-19 pandemic.
A positive funding rate lasted for six months, with many traders leveraging positions with cryptocurrency as collateral. When crypto prices dipped, traders were forced to sell, which triggered a cascade of liquidations, seeing BTC drop from a November 2021 peak of $64,800 to $29,000 in June 2021.
Again leverage hurt the markets a year later, but decentralized finance's (DeFi) major centralized finance (CeFi) players faltered after attracting massive investment with attractive yields. The rest is history, as the collapse of the US Terra stablecoin (UST) engulfed the ecosystem. Over-leveraged traders and positions were liquidated across various CeFi platforms — which exacerbated market sell-offs and sunk major capital lending firms in the space like Celsius and Three Arrows Capital.