The last three months have been extremely painful for cryptocurrency investors. The collapse of the Terra ecosystem triggered a widespread domino effect that continues to drag markets lower. Prices of Bitcoin (CRYPTO:BTC) and Ethereum have fallen off a cliff and are down 70% below all-time highs.
Let’s see why the crypto market is in the midst of an accelerated selloff and if there is an end to this mayhem.
Black swan events have hurt Bitcoin
Crypto platforms such as BlockFi and Celsius have disallowed withdrawals in the last month, making market participants extremely nervous.
Due to these black swan events, the number of BTC tokens held on centralized exchanges has fallen to the lowest level since 2018. According to Glassnode data, less than 2.4 million BTC are held on exchanges compared to more than 3.1 million BTC at the start of 2020.
Further, market sentiment in the cryptocurrency space continues to remain bearish. In the last week of June, crypto assets saw fund outflows totaling US$423 million, which marked the largest weekly outflow on record. While Bitcoin outflows stood at US$453 million, short-Bitcoin saw inflows of US$15 million.
Additionally, a Bitcoin exchange-traded fund was recently launched, allowing investors to profit from the price decline in BTC tokens. ProShares Short Bitcoin Strategy ETF is already the second-largest Bitcoin-focused ETF in the U.S., reflecting the fragile state of the market.
The BITI fund is designed to deliver the inverse of Bitcoin’s performance. For example, investors will report a profit of 5% if BTC prices fall by 5% (before management fees and expenses).
As of June 24, the BITI ETF has attracted over US$11 million in total investments.
On-chain metrics for Bitcoin are not encouraging
Due to multiple de-leveraging and liquidation events in the last two months, the cryptocurrency market is now trading at multi-year lows. Let’s take a look at a few metrics to see if there is more pain in store for investors of digital assets such as Bitcoin and Ethereum.
- Supply in profit: It measures the percentage of total Bitcoin supply that is currently in profits. This figure dropped to 49% when BTC declined to US$17,600, which suggests over 50% of the supply is trading in the red. In previous bear markets, prices bottomed between 40% and 45% of supply in profit.
- Addresses in profit: It measures profitability and returns among individual wallets, which is similar to the supply in profit. Over the weekend, the addresses in profit were just 10% higher than the lowest level in the 2018-19 bear market and the COVID-19 crash.
- UTXOs in Profit: This metric helps analyze market profitability based on unspent outputs. Around 26.7% of UTXOs or unspent transaction outputs are in loss right now. In previous bear markets between 50.2% and 81.1% of UTXOs were in losses.
- LTH-Supply in profit: It monitors the profitability of long-term holders. Around 35% of LTH supply is at a loss. In previous markets between 42% and 51% of LTH supply were in losses.
The Foolish takeaway
In addition to a weak macro-environment (inflation, rising interest rates, slowing GDP rates, etc.), selling pressure among digital assets has accelerated in recent days due to liquidations. The cryptocurrency market is likely to enter a period of extensive consolidation before it gains momentum based on historical trends.
