The year 2022 has proven to be a historically challenging period for nearly all asset classes. Stocks, bonds, and digital assets alike struggled under the weight of tightening monetary conditions. Macroeconomic pressures, including rampant inflation and subsequent liquidity contraction, placed immense strain on an already over-leveraged cryptocurrency ecosystem. Much of the recent market pain originated from highly leveraged positions, compounded by the remargining of collateral both on and off the blockchain.
In this environment, both Bitcoin and Ethereum saw their prices fall below the all-time highs (ATH) of their previous cycles—an unprecedented event. This decline pushed a significant portion of the market into unrealized losses, meaning virtually every investor who entered the market between 2021 and 2022 is currently holding positions at a loss. Amid this financial distress, a growing number of investors are liquidating their holdings, crystallizing losses at a record scale.
This analysis examines the observable capital destruction for Bitcoin and Ethereum, assessing the statistical magnitude of the recent sell-off. We will compare this downturn to previous cycles to gauge the severity of the current bear market.
Assessing Bitcoin's Drawdown and Duration
We begin by evaluating the scale and duration of Bitcoin's current price decline, comparing it to previous bear markets in 2015, 2018, and 2019. We will also consider two potential start dates for the 2021-22 bear market: the first from the peak on April 14, 2021, and the second from the November 8, 2021, high. As explored in prior research, many on-chain signals indicate that May 2021 is the most appropriate starting point, as the sell-off that month marked the true origin of bearish sentiment, flushing out a significant number of marginal buyers and sellers.
Historically, bear market bottoms have been established when Bitcoin corrected between -75% and -84% from its prior cycle's ATH. These downturns lasted 260 days in the 2019-20 cycle and 410 days in 2015.
The current decline has reached -73.3% from the November 2021 ATH, with a duration ranging between 227 and 435 days. This places the current bear market squarely within historical norms in terms of both depth and length.
The Mayer Multiple is a derivative of one of the most widely used technical indicators: the 200-day simple moving average (200DMA). This moving average often serves as a dividing line between technical bull and bear markets.
- Prices trading below the 200DMA are typically considered to be in a bear market.
- Prices above the 200DMA are generally characteristic of a bull market.
Bitcoin's macro price movements have largely adhered to this framework over the years. The Mayer Multiple (MM) measures the deviation above or below the 200DMA, indicating overbought or oversold conditions, respectively.
The 2021-22 cycle recorded a Mayer Multiple low of 0.487, lower than the previous cycle's bottom of 0.511—a first in Bitcoin's history. Out of 4,160 trading days, only 84 (2%) have closed with an MM value below 0.5.
Shifts in Bitcoin's Fundamental Value
Using on-chain analysis, we can evaluate shifts in Bitcoin's fundamental valuation models based on actual holding and spending patterns. Changes in the realized price—the total cost basis per bitcoin based on the price at which each coin last moved—help measure extreme capital outflows and realized losses among investors.
- The realized price rises when investors spend coins that were accumulated at lower prices, revaluing them higher. This is typical in bull markets and profit-taking phases.
- The realized price falls when investors sell coins acquired at higher prices, locking in losses and reflecting net capital outflow. This is characteristic of bear markets and capitulation events.
It is uncommon for the spot price to trade below the realized price, having occurred only three times in the last six years. The two most recent instances—the COVID-19 crash in March 2020 and the capitulation event in November 2018—both marked the bottom of their respective bear market cycles.
The spot price is currently trading 11.3% below the realized price, indicating that the average market participant is holding an unrealized loss.
We can next derive the MVRV Ratio, an oscillator that compares market value to realized value. This allows us to visualize significant deviations from this mean.
The chart below highlights periods where the spot price traded below the realized price in blue. Only 604 of Bitcoin's 4,160 trading days (13.9%) have been spent in this blue zone.
The denominator of the realized price is the realized cap, calculated by summing the value of all bitcoin in circulation at the price each coin last moved. This metric represents the stored intrinsic value within the network.
By analyzing the 30-day change in the realized cap (Z-Score), we can statistically assess the relative monthly capital flows into or out of the Bitcoin asset. By this measure, Bitcoin is currently experiencing its largest capital outflow event in history, with a reading of -2.73 standard deviations (SD) from the mean. This is a full standard deviation larger than the two previous major events: the end of the 2018 bear market and the March 2020 sell-off.
Quantifying Realized Losses
Next, we evaluate the scale of these losses to understand how network participants are responding to prolonged uncertainty and financial adversity.
The Net Realized Profit/Loss metric reflects the net capital flow mechanism from investors selling their bitcoin on any given day. As the price plummeted into the $20,000 range, the market witnessed the largest daily USD-denominated realized loss in history. Investors collectively locked in $4.234 billion in losses in a single day, surpassing the previous record of $3.457 billion set in mid-2021 by 22.5%.
As the Bitcoin market matures, the potential scale of USD-denominated losses (or profits) naturally expands with network growth. However, even on a relative basis, this does not diminish the severity of over $4 billion in net losses.
Measuring net realized profit/loss in bitcoin terms effectively normalizes for market size. The current drawdown has recorded realized losses equivalent to -98,566 BTC per day (0.52% of the circulating supply). Historically, only two trading days have seen larger realized losses: during the 2011 bear market and in March 2020.
We have now established two key concepts:
- Bitcoin's spot price is trading far below its realized price, indicating the average investor is holding at a loss.
- Actual selling behavior has generated extraordinary and historically significant net losses.
Based on this, we can take a ratio between the realized cap and the value of coins spent. This ratio effectively captures capital inflows and outflows relative to market size.
The current value shows a negative deviation of -0.93 standard deviations from the mean. Historically, only 150 days have closed at a lower value (3.86% of all trading days). This provides further evidence quantifying the severity of the 2022 bear market.
Finally, we can assess the ratio between the volume of coins sold at a loss versus those sold at a profit. "Volume" here refers to the amount of bitcoin moved on-chain any given day.
During the May 2022 collapse triggered by LUNA, the loss-to-profit volume ratio reached 2.3x. This indicates that 2.3 times more volume was sold at a loss than for a profit. Historically, such a one-sided market is rare, and a high proportion of distressed volume indicates a significant investor capitulation event is underway.
In summary, the 2021-22 Bitcoin bear market presents the following observations:
- The price has declined by 73.3% from its all-time high, consistent with the upper bound of previous bear market lows.
- The duration from top to bottom ranges between 227 and 435 days, depending on the chosen start date.
- The deviation below the 200-day moving average is extreme, with only 2% of trading days performing worse.
- On a statistical basis, the market has experienced its largest monthly capital outflow on record.
- This is supported by selling behavior that has locked in immense relative losses, so severe that only 3.5% of historical trading days have seen greater capital flight.
- The loss-to-profit volume ratio has reached historic extremes, synonymous with deeply distressed investors.
We can now assert that the 2021-22 Bitcoin bear market is one of the most destructive in history, based on its severity, depth, capital outflow, and scale of investor losses.
The State of Ethereum
The second-largest digital asset, Ethereum (ETH), could not avoid the downturn, also correcting below its previous cycle high of $1,400. With both major digital assets trading below their prior cycle peaks, we can dispel any notion of "impenetrable" support at previous all-time highs.
As with Bitcoin, all investors who purchased Ethereum in 2021-22 currently hold unrealized losses. As discussed in recent research, a significant portion of this decline was driven by massive deleveraging within the DeFi ecosystem.
By comparing the rate of change in Ethereum's market capitalization to Bitcoin's, we can assess the relative performance and dominance of the two primary assets.
- A high Bitcoin Dominance indicates BTC is outperforming, with an upward trend suggesting a general flight of capital to BTC.
- A low Bitcoin Dominance (high ETH dominance) indicates ETH is outperforming, often occurring later in the risk curve when the digital asset sector performs well.
Since the November 2021 ATH, Ethereum's dominance has declined significantly and is approaching historical inflection points that have previously preceded prolonged periods of Bitcoin outperformance. This highlights a general state of risk aversion, where ETH underperforms BTC, and both tend to underperform the USD.
An interesting metric, first proposed by Permabull Nino, describes the value captured per byte of blockchain data on Ethereum. As the leading smart contract platform hosting a vibrant ecosystem of applications, the value captured per byte of stored data should, in theory, increase as network effects improve (and vice versa).
Ethereum currently stores $0.30 of value per byte. This is only 2x above the lower bound of $0.15/byte, which has historically coincided with the later stages of bear markets and market lows. This suggests that, if history repeats, Ethereum's price could potentially fall another 50%. However, this assumes no fundamental improvement in the Ethereum network's value capture mechanisms. It is worth noting that DeFi, NFTs, and much of the modern infrastructure did not exist in 2018.
ETH is also trading far below its 200-day moving average, with a Mayer Multiple of 0.37. This indicates that, at recent lows, Ethereum was trading 63% below its 200DMA. Historically, only 1.4% of trading days have seen a larger downward deviation.
Historically, only about 10% of trading days have seen a Mayer Multiple below 0.6. During the 2018 bear market, ETH spent 187 days below this band at the worst of the price action. In the current market, ETH has traded below this band since early June, a stretch now lasting 29 days.
We can implement a framework similar to the one used for Bitcoin to assess Ethereum's realized cap, comparing the scale of the bear market between the two assets. The Ethereum MVRV Ratio has reached a significant negative deviation far below equilibrium, indicating the market holds a total unrealized loss of -33%.
The Ethereum price has spent 37.5% of all trading days below its realized price, a stark contrast to Bitcoin's 13.9%. This may reflect BTC's historical outperformance during bear markets, as investors withdraw capital up the risk curve, causing ETH to trade below its investor cost basis for longer periods.
The current cycle low for MVRV is 0.60. Historically, only 277 days have seen a lower value, equating to 11% of trading history.
The MVRV Ratio for ETH 2.0 staking can also be calculated based on the price at the time of staking. The average price for staked Ethereum is $2,400—more than double the current spot price. This has resulted in a total unrealized loss of -55% for ETH 2.0 stakers, underperforming the average Ethereum investor by -22%.
We can conclude this exploration by examining the monthly change in Ethereum's realized capitalization, which again demonstrates net capital outflow from the network. Here we can see that the recent downward price action was interrupted by two major capitulation events:
- December 2021: A market-wide deleveraging event, driven by concerns over the Omicron variant and Federal Reserve tightening, led to the liquidation of $5.4 billion in futures open interest and approximately $11.6 billion in capital flowing out of Ethereum.
- May-June 2022: The Luna collapse and subsequent second-order effect deleveraging sent ripples through the entire digital asset ecosystem, triggering roughly $16 billion in capital outflows from Ethereum.
The latter event represents a -2.67 standard deviation move from the mean, clearly the largest monthly outflow in the history of the ETH asset.
Ethereum Transaction Profitability shows the average profit (positive, green) or loss (negative, red) realized on all ETH sold on a given day.
In bear markets, realized losses dominate during downward price movements. In the current market, the average trader is realizing a loss of -16.4% on the ETH they sell. This poor transaction profitability was last seen in the depths of the 2018 bear market when Ethereum traded at $84.
In summary, the 2021-22 Ethereum bear market presents the following statistics:
- Ethereum has drawn down -79.5% from its all-time high, placing this sell-off within the upper bound of previous bear market bottoms.
- Bitcoin dominance is controlling the direction of capital flows, which historically foreshadows continued Ethereum underperformance in the months ahead.
- The value captured per Ethereum byte suggests deteriorating capital efficiency and a potential for a further 50% decline. An earlier recovery would indicate improved value capture mechanisms on the Ethereum network.
- The last six months have seen the two largest statistically recorded capital destruction events in Ethereum's history, with a combined net outflow of $27.6 billion in realized capitalization.
- Both ETH and ETH 2.0 MVRV have seen significant contraction, indicating the average holder is sitting on substantial unrealized losses.
- Ethereum transaction profitability continues to hover at levels last seen in January 2019, with investors realizing an average loss of -16% per transaction.
Conclusion
2022 has been a difficult year for digital assets. This particular bear market has hit Bitcoin and Ethereum exceptionally hard. Many on-chain and market performance metrics have reached historically and statistically significant lows.
In this analysis, we normalized numerous metrics to account for market size growth and maturing capital flows. Even within this relative and statistical framework, we can largely confirm the severity of the 2022 bear market.
The various studies above highlight the magnitude of investor losses, the scale of capital destruction, and the observable capitulation events of the past few months. Given the extensive duration and scale of the current bear market, we can reasonably argue that 2022 represents the most destructive bear market in the history of digital assets.
Frequently Asked Questions
What defines a bear market in cryptocurrency?
A bear market is typically characterized by a prolonged period of declining prices, often a drop of 20% or more from recent highs. It is accompanied by widespread pessimism, negative investor sentiment, and increased selling pressure. Key technical indicators, like trading below the 200-day moving average, often confirm the bearish trend.
How does the current Bitcoin bear market compare to previous ones?
The current bear market is among the most severe in history. It features a -73.3% drawdown from its all-time high, significant duration, record capital outflows, and unprecedented realized losses. Statistically, metrics like monthly capital outflow Z-Scores and the Mayer Multiple indicate it is more extreme than prior cycles.
What is the Mayer Multiple and why is it important?
The Mayer Multiple is the ratio of the current Bitcoin price to its 200-day simple moving average. It helps identify overbought and oversold conditions. Values significantly below 1.0, like the current 0.487, indicate extreme oversold conditions rarely seen in Bitcoin's history, often correlating with market bottoms.
What does the MVRV Ratio indicate?
The Market Value to Realized Value (MVRV) Ratio compares Bitcoin's market capitalization to its realized capitalization. A value below 1.0 indicates the spot price is below the average cost basis of all coins, meaning the average holder is at an unrealized loss. This often signals capitulation and potential market bottoms.
What caused the massive capital outflows in Ethereum?
Two major events drove historic capital outflows: the December 2021 market-wide deleveraging ($11.6B outflow) due to macro fears, and the May-June 2022 LUNA collapse and subsequent DeFi contagion ($16B outflow). These events triggered massive selling and liquidation of leveraged positions.
Is there hope for recovery based on on-chain data?
Historically, extremes in on-chain metrics like deep negative MVRV values, record realized losses, and high loss-to-profit volume ratios have often marked cycle bottoms. While not a guarantee, these signals have preceded significant recoveries in the past, suggesting the potential for a future market reversal. For those looking to monitor these complex metrics in real-time, 👉 explore advanced on-chain analysis tools that provide deep market insights.