2022 has been no fun for Bitcoin holders. Short term traders may have been able to take advantage of some very volatile markets, but HODLers will be down on their investments significantly. From November 2021, the Bticoin BTC to USDT conversion has fallen by over 65%, making Bitcoin less valuable than it was previously – by up to 2/3rds.
If you were to take a look at any Bitcoin app where you can trade the world’s most popular cryptocurrency from, you will see a drastic fall in values from the turn of the year onwards. Many events in 2022 have contributed to this, including war in Eastern Europe and rising inflation in the United States, a powerhouse economy that is home to the world’s most influential stock market.
This leaves traders in a difficult position right now. Do they cut their losses, or do they hold out for better days? The following article will consider some of the fundamentals associated with this, and try and make a reasonable guess as to the longer-term prospects of BTC.
The Story So Far
Bitcoin is down from record highs in November 2022 by close to 70%. If you had bought 1 whole Bitcoin on November 9th, you would have lost over $45,000 on your investment. Since the turn of the new year the BTC USDT conversion has been on a steady decline, and as global events have unfolded across the world it seems even more likely by the day that it will continue to fall further and struggle to make any ground back in the short term.
The most recent macroeconomic event to impact the market is rising inflation rates in the United States. Stock markets have taken a tumble on the back of poor economic prospects in the country, and subsequently traders have offloaded their crypto in favor of more traditional investment forms. This has created significant downward pressure on markets, resulting in the price falls that we have seen over recent weeks.
Looking At The Market
There has been a trend of net Bitcoin withdrawals from central exchanges for some time now. This trend has become even stronger recently, and in the first week of July there was a net withdrawal of Bitcoin to the tune of 28,000 coins. There is a higher demand for buying Bitcoin at a lower price, and this is translating to this part of the market.
This, however, is beginning to create a supply issue for traders looking to get hold of some BTC – although that’s not altogether a bad thing. With the gradual decrease of the remaining BTC in exchanges, Bitcoins available for trading in the market are becoming more scarce. This means that a large number of BTC have entered a state of low liquidity, or total illiquidity. The total volume of Illiquid supply of BTC is over 14.66 million pieces, and this trend is accelerating. The ratio of Illiquid supply to total circulation currently exceeds 76.8%. In the long term, this will further weaken the market selling pressure on Bitcoin, which means less supply. In the long term though, the demand side is strengthening, which will be positive for price.
Furthermore, while traders are trying to snap up Bitcoin at a lower BTC USDT conversion rate, those that are lucky enough to get hold of some are HODLing. There are a lot of Bitcoins in Dormancy, meaning they are not actually in circulation. As a result, the flow index of dormant Bitcoins held by entities is at a new low. When large amounts of Bitcoin are not moved on the chain or traded on exchanges, it means that most of the coins are held by long-term holders, making tradeable chips even more scarce.
While the fall in Bitcoin’s price has been volatile, the market is dominated by chips held by short-term traders and a small proportion of long-term holders, which account for a small percentage of the total number of coins in circulation. Therefore, as long as the market digests some of the selling pressure and puts it into a “cold storage” state, the market chip structure will become more unbalanced, which will lay a solid supply and demand foundation for any future bull market.
With many Bitcoin in a state of dormancy, there is an expectation – based on historical market trends – this will work well in rebalancing the supply vs demand conundrum that the market is facing. With less supply available to traders, Bitcoin becomes a more valuable asset to own. This should translate to a higher trading price, although that will of course depend on many other market factors working in its favor.
To keep ahead of the latest developments in the Bitcoin market, it is advised to download a Bitcoin app that tracks the latest price changes in real time. An option for this would be ZB Pro, the flagship application of ZB.com.