Bitcoin (BTC) hodlers may need to triple their on-chain losses for BTC price to put in a macro low.
According to market research firm Baro Virtual, the 2022 bear market is not yet harsh enough to match historical downtrends.
Bitcoin losses “only” total $671 million
With analysts predicting a return to $14,000 or lower for BTC/USD, the question of where Bitcoin will bottom is one of the hottest topics in the space this month.
For Baro Virtual, which analyzed data from on-chain analytics platform Whalemap, it may be a matter of simple arithmetic.
Taking Whalemap’s moving profit and loss (MPL) figures for on-chain BTC transactions, it noted that in the past, macro BTC price bottoms occurred once those transactions’ losses were equal to or more than the equivalent profits in the bull run which preceded them.
In other words, on-chain losses need to equal or exceed on-chain gains from the prior bull run. Otherwise, in most cases, Bitcoin has fallen further later on.
“Monthly MPL by Whalemap makes it almost sure, in most cases, to determine the global bottom of $BTC,” Baro Virtual wrote in Twitter comments on Nov. 22:
“The condition is that the current loss level must be equal to or > than the max profit level of the previous bull run.”
Current realized losses are thus not large enough to fit Bitcoin’s historical capitulation trend, it argued, leaving the door open to further BTC price capitulation.
How much is needed, however, could mean that the ultimate macro bottom for Bitcoin lies much lower than this week’s two-year low of $15,480.
“Now the losses are $671M, and the previous max profit is from $1.3B to 1$.7B,” the thread continued alongside an annotated chart:
“Thus, losses from $629M to $1.029B are still missing to confirm complete capitulation.”
BTC targets 80% drawdown
The findings complement a narrative that likewise suggests that the 2022 bear market is yet to rival 2014 and 2018 — years which saw macro lows in BItcoin’s two prior halving cycles.
Versus the latest all-time high in November 2021, BTC/USD has so far managed a 77% drawdown — less than in prior bear markets.
Data from on-chain analytics firm Glassnode nonetheless shows how Bitcoin is gradually homing in on a retest of maximum losses versus all-time highs.
Likewise, the percentage of the overall BTC currently held in profit is almost, but not quite, at lows synonymous with macro bottoms.
“Bitcoin’s 78% drawdown over the last year is its largest since 2017-18 and at 376 days is now the 2nd longest, trailing only the 2013-15 decline of 410 days,” Charlie Bilello, founder and CEO of Compound Capital Advisors, additionally noted this week.
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That’s driven lots of new interest to some of the earliest decentralized players. Dan Gunsberg, creator of Solana-based derivatives exchange Hxro, said that in recent weeks he’s seen a boom in interest for his trading platform, which he claims cannot fall prey to the same pain points that felled FTX and its sister company, Alameda.
While bitcoin prices have been lower than the estimated cost of bitcoin production, the network’s hashrate has dropped a great deal since mid-November. Presently, the total hashrate dedicated to the Bitcoin network is coasting along at 236 exahash per second (EH/s) after dropping below the 200 EH/s range six days ago.
Bitcoin’s Hashrate Slips Lower
The first week of November 2022 was brutal for digital currency prices as FTX’s collapse rippled across the entire industry in a negative fashion. Prior to the FTX fallout, bitcoin was trading above the $20K zone and the network’s total hashrate was coasting along at roughly 270 to 290 exahash per second (EH/s) before the blowout.
There was a quick burst of increased hashrate the day after FTX filed for bankruptcy and BTC’s total hashrate tapped an all-time high on Nov. 12, 2022. At block height 762,845, bitcoin miners managed to get the hashrate to briefly rise to a whopping 347.16 EH/s. Since then, the hashrate has divebombed and slid below the 200 EH/s range on Nov. 26.
Presently, bitcoin miners have managed to rise above the 200 EH/s region, to the current 236 EH/s recorded at 10:15 a.m. (ET) on Dec. 2, 2022. The drop in hashrate indicates that unprofitable mining entities have been forced to shut down machines, while only the strong operators survive.
At the time of writing, the estimated cost of bitcoin production ($16,956) is awfully close to the leading crypto asset’s spot market value ($16,897). Previously, the cost of bitcoin production was $18,313 on Nov. 30, which was significantly higher than BTC’s spot market value. With a drop in BTC production costs, it makes it easier for current operators to survive.
Bitcoin miners are also expecting a large mining difficulty reduction between 6.56% to 7.9% lower than today’s difficulty rating on or around Dec. 5, 2022. Presently, the estimated mining difficulty reduction could be the largest difficulty drop the network has seen in 2022. Since Nov. 30, up until Dec. 2, 2022, roughly 80 exahash of hashpower has been removed from the network’s total hashrate.
What do you think about the current state of Bitcoin’s hashrate? Let us know what you think about this subject in the comments section below.
Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 6,000 articles for Bitcoin.com News about the disruptive protocols emerging today.
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