In today’s issue we will cover historical bear markets in bitcoin, and will differentiate from what we believe are two distinct phases of the classical bear market.

Price-Based Capitulation vs Time-Based Capitulation

A look at previous bitcoin bear market cycles shows two distinct phases of capitulation:

The first is a price-based capitulation, through a series of sharp selloffs and liquidations, as the asset draws down anywhere from 70 to 90% below previous all-time-high levels.
The second phase, and the one that is spoken of far less often, is the time-based capitulation, where the market finally begins to find an equilibrium of supply and demand in a deep trough.

Let’s cover both of these phases with visuals and data derived from the blockchain.

Bitcoin Drawdowns from All-Time Highs

While much has been written about the macroeconomic backdrop regarding the bitcoin market (with our analysis assuredly included), this bitcoin cycle ironically does not look all that different from the cycles of the past.

At the time of writing, bitcoin is 69.72% below previous all-time highs, with the peak of the drawdown reaching 71.86% on May 18. Bear markets of bitcoin’s past saw drawdowns of 93.08%, 84.82% and 83.47% respectively. With this in mind, despite the absolute size of this cycle’s drawdown dwarfing previous cycles, in relative terms this was nothing out of the ordinary for bitcoin.

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Another staple of our analysis is the realized price/market capitalization metric. Realized market cap aggregates the price of every bitcoin when it last moved on-chain, to come up with a “fair” value for bitcoin, or for realized price, an “average” cost basis.

Every significant drawdown in bitcoin’s history has seen price breach the realized price level, signifying that on average, bitcoin holders are underwater as per the last price that every coin (technically: UTXO) was transferred.

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