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The bitcoin price is now firmly below $20,000, an important level for psychological and technical reasons. Of course, the psychological effect of the plunge below $20,000 is obvious. However, from a technical standpoint, bitcoin is now trading below the record highs locked in during its previous cycle, and the same is true of Ethereum.
Key significance
This point is significant because it's the first time it has happened in history and because it has plunged the vast majority of crypto investors into unrealized losses. All investors who bought bitcoin or ether in 2021 or 2022 are now underwater on their crypto holdings.
Additionally, Glassnode reports that a growing percentage of investors are locking in those losses by dumping all of their cryptocurrency. The firm said recently that bitcoin's price collapse to around $20,000 brought the largest daily realized loss in U.S. dollars ever.
According to Glassnode, investors in aggregate locked in a loss of $4.2 billion in a single day, a 22.5% increase from the previous record of $3.46 billion in mid-2021. The firm expects the magnitude of potential dollar-denominated losses or profits to scale as the network grows. However, that doesn't minimize the severity of the more than $4 billion net loss.
Multiple indicators suggest that the current bear market is unprecedented in crypto history. Suddenly, the macroeconomic factors that affect other asset classes are also weighing on crypto prices. Historically, most drawdowns in the market resulted from crypto-specific headlines or technicals.
However, that doesn't mean we can't learn from those previous bear markets. CoinDesk surveyed some survivors of the last crypto bear market for clues about what investors may want to do or avoid if they want to survive the current bear market.
Know when to hodl 'em… know when to walk away
The first bit of advice those bear market survivors offered was to take some profits. However, as already stated, it's too late for many bitcoin investors to take any profits on their holdings. The term "hodl" (hold on for dear life) has become the motto of many crypto investors, but there's no shame in taking profits — as long as you're able to do so.
Many of the most successful investors in other assets do the same. Bitcoin's long-running, steep selloff illustrates how important it is to know how much you paid for your cryptocurrency when you bought it. It's always a good idea to write down the amounts you paid rather than trying to look at the price chart and guess where you bought your bitcoin at.
The prices of bitcoin and many other cryptocurrencies change suddenly and often move significantly higher or lower in a very short time. It's not unheard of to see drawdowns or rallies of 50% or more in a single day or a few days. As a result, you need to know exactly where you bought it so that you can avoid locking in losses.
Of course, if you genuinely believe that crypto prices won't come back or are in desperate need of cash, you might have to lock in a loss. Investors facing a margin call have no other choice. However, it's best to sell before you end up underwater, and you don't even have to sell your entire position.
On a related matter, it's always good to avoid selling out of panic. Investors who remain level-headed throughout bear markets tend to have better long-term success. Additionally, using leverage to buy cryptocurrency is usually inadvisable. Whenever you borrow money to buy an asset, you risk losing significantly more than you borrowed.
When will bitcoin bottom out
Of course, crypto investors at all stages want to know when the bitcoin price will bottom out, whether they're thinking about taking profits or are past the point of no return. Perhaps unsurprisingly, Cathie Wood believes bitcoin's bearish continuation pattern has limited room left to run.
In her latest "Bitcoin Monthly" report for her firm ARK Invest, Wood offered signs that make her believe bitcoin is close to the bottom. Wood and her firm have remained invested in bitcoin as it plummeted from record highs, and they remain convicted now.
In her report, Wood noted that bitcoin is down 70% from its record highs and is now trading at or below some of its most important levels. They include the cryptocurrency's 200-week moving average, the market's general cost basis, the cost bases of its long-term and short-term holders, and its 2017 peak.
Wood added that it's atypical for bitcoin to trade below those levels and suggests "extremely oversold conditions." She also noted that there have only been four times in history when the cryptocurrency has traded "Below price levels relative to these means."
As a result, Wood believes most of the losses have already come. She also called attention to some other indicators that she doesn't think have seen absolute lows yet, which include the ratio of realized cap and the cost basis of entities hodling for various lengths of time.
According to Wood, history has shown that global bottoms occur "when the MVRV of short-term holders exceeds the MVRV of long-term holders." She added that they're waiting for "a few more capitulation signals" and that "time will tell on the systemic side."
Calls for bitcoin to fall lower
However, views differ on where bitcoin will be priced at when it finally bottoms out. For example, Cointelegraph reports that consensus is building around a decline to $16,000. Like Wood, the site added that most on-chain indicators are already at lows seen rarely or never before.
Cointelegraph added that bitcoin's MVRV-Z score is "almost but not quite", signaling a price reversal. The indicator measures how high or low the bitcoin spot price is compared to what's seen as its "fair value." The MVRV-Z uses the cryptocurrency's market cap and realized price data with standard deviation to create what Cointelegraph describes as "one of the most efficient Bitcoin top and bottom prediction tools."
LookIntoBitcoin pointed out that the indicator has caught every macro top and bottom on bitcoin's price in U.S. dollars ever, with an accuracy of two weeks. According to Cointelegraph, the MVRV-Z score has only fallen under its green zone a handful of times, with the most recent occurrence in March 2020. However, it added that more downside pressure would deliver a repeat performance.
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