Despite the recent bear market, over half of Bitcoin addresses are still profitable. This raises questions about the current state of affairs.
According to data collected by Glassnode, over half of all Bitcoin addresses are still worth more in US dollar terms than when they were first created.
After the price of Bitcoin hit a 19-month low of $17,600 over the weekend, many analysts started to anticipate a potential bear market. They believe the price could fall to around $84.5% from its all-time highs.
The lack of highs during this year's bull market has led to a sense of confusion among investors. Despite the multiple factors contributing to the market's decline, the drawdown has been unexpected.
According to the data collected by Glassnode, the price of Bitcoin has bottomed out and is currently in a bear market. However, it's still not clear if the current decline will continue.
For instance, in March 2020, the number of profitable Bitcoin addresses dropped to 41%. In 2018, the bear market had already dropped below 50%.
According to a report by Cointelegraph, many people already feel the decline's effects. They're starting to panic and pull their money out of the market.
On June 13, the day of the largest on-chain losses in BItcoin's history, the value of the cryptocurrency dropped to almost $5 billion.
Incoming big short
According to Dylan LeClair, an analyst at UTXO Management, there needs to be a split between the retail and derivatives markets before the market reverses.
LeClair claims that during times of decline, retail investors sell first, and speculative traders follow suit by shorting Bitcoin to unnaturally low levels.
A portion of a tweet that LeClair posted noted that the costs to short positions had increased as the price action decreased in recent days. He also said that more liquidations are needed in the decentralized finance industry before a definitive bottom can be established.
Bottom is in when the derivatives market is shorting $BTC into the dirt after the brunt of the spot selling has taken place.
Getting closer... pic.twitter.com/HfDDflu06D— Dylan LeClair 🟠 (@DylanLeClair_) June 20, 2022
Mitigating risks in high-risk assets
The volatility in the market is caused by the inherent risks in the asset class. As a result, cryptocurrencies' delicate and young garden is starting to wilt under the weight of the market's risk-off environment.
As a result, portfolio managers are required to consider the various risks associated with cryptocurrencies when making decisions about their investments. For instance, many professionals and retail investors often exit the market completely when the first signs of a bear market appear. This strategy is often seen as a necessary evil and is prone to missing significant reversals.
Despite the various risks associated with cryptocurrencies, the asset class still maintains its value in the worst of times. For instance, Bitcoin-heavy portfolios are more conceivable to perform well during a bear market. However, with a correlation of 0.90+ between Bitcoin and the altcoin market, the sudden decline in the value of Bitcoin can cause a churn in the assets that are still in the same boat.
For those willing and able to take on the risks associated with cryptocurrencies, including Proshares and BetaPro's Bitcoin-focused exchange-traded funds (ETFs) can provide a hedge. However, these solutions are not ideal for every investor due to their accessibility and fees.
The solution to the mass exodus of money from the crypto bear market is the assets themselves. Although it is impossible to escape the risks associated with cryptocurrencies, there are various ways to mitigate them. For instance, through decentralized autonomous strategies, investors can find new ways to manage their technical and centralization risks.