According to Blockchain analytics firm Glassnode, Bitcoin could be in for a prolonged bear market.
The price of Bitcoin is now below $40,000 and the latest market report from the firm cites several “bearish headwinds”, including falling on-chain activity in the Blockchain network, and more than 4.7 million BTC currently held at an unrealized gain.
The report states that the decline in crypto and traditional equities is due to broader market uncertainty around looming interest rate hikes by Federal Reserve, conflict with Ukraine and civil unrests in Canada. This latter has led to the freezing of bank accounts as well as Bitcoin funds for those who are participating in ongoing convoy demonstrations in Ottawa.
In an attempt to reduce record-breaking inflation in the U.S., the Federal Reserve has been warning for months that it would raise interest rates. Investor confidence in investing in risk assets is affected by higher interest rates. Bitcoin tends to correspond with.
Glassnode researchers have concluded that Bitcoin’s downtrend is likely to continue. The report states that the longer investors remain underwater in their positions, the more likely they are to lose unrealized losses, and the more likely that the coins they have will be sold. Over 25% of all network entities currently are in a negative situation.
This week, there were approximately 275,000 active Bitcoin addresses. That’s a significant increase from the 350,000 recorded in January. Although weak network activity can be interpreted as a bearish signal, the long-term trend of dedicated holders is positive. Glassnode discovered that 219,000 addresses were empty in the past 30 days. This could be a sign of “net outflows of network users,” as in May 2021.
Next, what?
Glassnode’s report concluded that crypto bulls have “their work cut out” due to the many on-chain and offline bearish forces they are currently facing. However, the supply-side dynamics seem more optimistic than in previous bear markets. According to the firm, long-term investors are more likely to hold onto their Bitcoin and use derivatives to reduce risk than sell their direct assets exposure.
Glassnode states, “It seems like a bear-market,” but he adds, “But keep in mind that the bear author the bull that follows longer term.”
Investors who bought Bitcoin at or near the top might be less optimistic despite the positive outlook. Bitcoin is down almost 45% since its high of $69,000.
