 The current bear market is the worst in the history of Bitcoin. That is what on-chain metrics and technical indicators tell us, according to crypto intelligence firm Glassnode. In terms of the depth and the amount of losses that investors have realized, it's essentially much, much larger than what we've seen in previous bear markets. Really what we've seen is a kind of maximum pain. But despite the price downtrend, a silver lining seems to be emerging. Cycle after cycle, that floor of hudlers is higher, the amount of activity is higher. In this video, we sit down with James Czech, an analyst at Glassnode, to try to answer the following questions. What is the actual state of the Bitcoin market beyond price movements? And how can we use the on-chain metrics to spot the bottom of this bear market? Before we start, don't forget to like the video and subscribe. I'm Giovanni, your host, and this is a Cointelegraph interview. So in a recent report, you defined this bear market as the worst in the history of Bitcoin. Can you tell us why exactly it is the worst, and what makes it so bad compared to previous bear markets, like the one we saw back in 2018-19? Yeah, and really we tried to come at this at Glassnode from a statistical standpoint. So what we're looking at is a number of things. Generally speaking, we look at how investors behave. And what we typically see is investors who have held their coins for a certain period of time, and also who are when you're under water by 30% or 50%, your behavior pattern is different to when you're in profit. So what we really looked at is how far of many of these metrics that show just how in profit or in this instance, how in loss the investor cohorts are. And what we've essentially found is that both in terms of duration, and also in terms of the depth and the amount of losses that investors have realized, it's essentially much, much larger than what we've seen in previous bear markets, or at the very least, it's comparable across most of these metrics. Now, can you get a bit deeper into these metrics that you're using for coming to those conclusions? Yeah, so what we're looking at in particular, we look at a metric called the realized capital, the realized price. And what this looks at is the average price that every investor is paid. Now, we can further just split that up into different cohorts of investors. So we look at it across the entire market. We can look at what we call long and short-term holders, which have held for five months, more or less. And that really defines a statistically different cohort. Long-term holders typically have a much, much stronger hand, they're less likely to react in terms of volatility, and in the face of things like that. Whereas the shorter term holders, statistically speaking, are more likely to spend their coins and actually sell at small profit or losses. So there's a few angles to this, but what we saw is over $4.5 billion in net realized losses. So these are people who accumulated their coins at some point in the past. And then when they're spending it in the face of these price declines down to 20k, or 17.6, what we're seeing is those coins getting revalued at a much cheaper price. So someone accumulated at 50,000 and then sold at much lower. So on net, there was about $4.5 billion in a single day during that June 18 sell off event. And we can see the same across our long and short-term holder cohort. So really what we're seeing is a kind of maximum pain. We're seeing long-term holders that have started to really distribute their coins at a loss. And given that we're down at 20,000, the entire 2021-2022 cycle is essentially at loss. So we're kind of looking at an entire investing cohort who are more or less underwater. And we can actually observably see their, I guess, their financial pain in terms of the way that they're spending their coins. Okay, and those are on-chain metrics. But I also think that you're using technical indicators like, for example, the 200-day moving average and the 200 weeks moving average. And Bitcoin has been trading below both those indicators, which are also assigned that the situation is pretty severe in terms of bear market, correct? Yeah. So what we're really looking at is confluence. How has the market performed in previous cycles? What metrics do we have that describe holding behavior, spending patterns? So both the on-chain side, but as you mentioned, also market signals. And what we try to layer in there is a layer of probability. So you mentioned the 200-day and there's also the 200-week moving average, very commonplace technical indicators. But also we can look at how many days of the year in Bitcoin's trading history hasn't traded below or above those particular values. And what we look for is when we have multiple metrics that are all, the price has deviated more than 40% below the 200-day moving average. And it's currently below the 200-week moving average. It's also below the realized price, which is that cost basis I mentioned. And when you combine all of these layers together, what you essentially have is a very, very uncommon event. So over history, we have seen very, very few instances where all of these particular indicators have been signaling the same thing. We're seeing very, very few new people coming into the network. And what that really establishes is kind of a floor of the hobblers, so to speak. These are the people who like the last line of defense, the buyers of last resort, the people who really believe in Bitcoin rain, hail, or shine. I wanted to highlight another interesting point that you talked about in your report. So more and more users are moving their funds from exchanges into self-custody wallets. So how significant is this trend? And what are the metrics that you are using in order to come to these conclusions? Yeah, absolutely. So this is a really interesting dynamic. And what we've essentially seen is over the last 30 days, we've seen about 150,000 BTC flowing out of exchanges. And what we see in this particular instance is a very interesting divergence, which we actually haven't seen at any time over the last five years. And that is generally speaking, the number, so the number of deposits and withdrawals to and from exchanges typically move alongside price. So when you have higher price performance, more people come in, both on the buying and the selling side. So typically withdrawals and deposits move in tandem. However, over the last couple of weeks, as we've seen some of these lenders, there's been a kind of a renewed emphasis on the not your keys, not your coins. Now, this is probably part of it. We've also seen Bitcoin correct down to much, much lower levels in terms of price. So every dollar goes further in terms of accumulating Bitcoin when it comes to people who are those price insensitive hodlers. So there's a number of dynamics at play. But the divergence that we're seeing at the moment is that the amount of withdrawals is increasing in scope, whereas the deposit is actually trending in the opposite direction. So we're seeing a greater emphasis on the withdrawal count. And this is really something that's only happened in the last couple of weeks. Now, when we look at things like transaction counts, withdrawals and deposits, we're removing the concept of Bitcoin volume. So in actually generally speaking, when you see something like that, it actually indicates there's more smaller spenders. Generally speaking, there's more $100 transactions and there are $1 million transactions, just in terms of volume. So what we're basically seeing is a probably a renewed emphasis from the retail crowd on a self custody type approach that waiting for this storm to pass, waiting for all of the dust to settle. How permanent do you think is this transition from exchanges to self custody solutions? No, that's a really good question. It's certainly one that I'm going to be paying attention to. So my gut instinct is that we're probably going to see a reversion back to an extent after some time, whether it's months or maybe a year. What we see is that we've got about more than 86% of all of the supply is already outside of exchanges. So already, there's always been a dominance towards coins being off exchanges. However, over time, these services become increasingly secure. We see, for example, Binance, their balance continues to climb to all-time high. So some of these services will continue to operate and customers will continue to migrate to them. So what I actually suspect is that we'll probably see a brief period where there's this renewed emphasis on not your keys, not your coins. But over time, the market's memory tends to fade and we'll see these services come back online. People's confidence will grow again. And it's likely that we'll move back into a regime where people will start depositing back to exchanges. So you previously said that market tourists are being purged out from the ecosystem. So what are the metrics that you're looking at in order to make this conclusion? And what do you think is this a good sign for the Bitcoin market in general? You know, there's many market anecdotes, you know, that markets move towards maximum pain. And you see, you know, when all cells are exhausted and all the speculators and the hype has come out of the market, essentially, when nobody wants to be in a particular asset, generally speaking, you're approaching near bear market loads. And that's essentially what we're watching here. What we've observed over the course of 2022 in particular is almost a sideways pattern. So we have a very, very stable base load of transaction counts, active addresses. And what this really demonstrates is we have this kind of base layer of hodlers. People who are pricing sensitive, they believe in what Bitcoin is and why it's here. And the highest probability is that this is kind of that base load of people who are just not going anywhere. So the market is over the course of 2022, correcting down to the final with all the four sellers until it finds that hodler demand floor somewhere aligned that they can actually hold in the sand. So this trend reminds me of previous bear markets. For example, even in 2018-19, we saw market tourists being fleshed out from the market. And then we saw the hardcore hodlers keeping their position with diamond hands. So in this sense, this is not a new trend. Still, maybe did you notice that this bedrock of hardcore stable long term holders has become more significant in this bear market? Because if that's the case, that would mean that despite the cyclicalities of bear and bull markets, the Bitcoin network is still becoming more and more resilient to these downtrends. Yeah, absolutely. And the answer is almost unequivocally yes. So what we generally see and in those reports, we had a, we call the bear market channel. So really, since 2016 onwards, the on-chain activity metrics particularly started to move into a more cyclical pattern. So pre-2016, it was very much an acceleration. People were almost just cutting into the network. Bitcoin was growing up. As we got past that 2017 bull market in particular, we saw these spikes in everything from fees to transaction counts and active addresses. They really peaked during bulls and they declined during bears. However, what we did notice is that over time, even during the bear market, you still have a linear trend of growth. So we still see that cycle after cycle, that floor of hodlers is higher, the amount of activity is higher. This includes metrics when we've done our clustering. So removing some of the technicalities like exchange wallet batching and things like that. So even accounting for all those technological changes, we still see a larger volume of actual hodlers and entities who are in this space. Within that framework, the amount of coins moving into what we call shrimp, people who have less than one BTC and whales who have more than 1000 BTC, it's almost a bit of a bell curve at the moment. Those two entities in particular are actually accumulating at some of the most aggressive rates for the shrimp. The most aggressive rate in history, it's now surpassed the 2017 peak, which is fascinating because it's the same price, just happens to be in a bear market rather than a bull. And the shrimp are essentially seeing this as an immense period of value. And simultaneously, explicitly for whales, we're looking at the exchange inflows and outflows. And what we're seeing is that they are also pulling coins off exchanges at a remarkable rate. I think it's the second largest in the last five years. So there's a number of pieces of evidence that's really suggesting that that floor of hodlers is higher. And there's something about this 20,000 level that they seem to see a level of value, both on the upside and the downside, interestingly. This accumulation that we are seeing that you described is still not actually inverting the trend in terms of price. So we are seeing that Bitcoin is still trapped in this downtrend. So what do you think? Is this downtrend strictly related to macro factors like the fact that the Fed is hiking interest rates? So this is really the big question that everyone wants to know, right? What is actually driving this thing? So there's a few answers to this. So the first one is that when we do see accumulation and stacking and all the rest of it, it doesn't necessarily mean that it's going to translate into price instantaneously. Generally speaking, markets are forward looking. And this applies for Bitcoin especially, because in many ways, it's one of the few free markets that are left. So price is able to correct and move in a way that in many instances, it hasn't been able to in traditional markets for many years. There's been lots of federal reserve quantitative easing and things like that that does distort markets to an extent. So Bitcoin is much more free and able to move. And in many ways, it's been a leading indicator for things. Simultaneously, what that means is its ability to actually flush out excess leverage and essentially self-correct is something that is genuinely real. So we saw this across all futures markets and derivative engines in the Bitcoin space. They are able to essentially net out and liquidate and solve all of the excess leverage within a span of an hour or so of a significant price move in the traditional equity space. And indeed, what we've seen in the off-chain space in the crypto market with three arrows capital and the like, it's these off-chain deals and things that aren't able to be cleared by automated systems that take months and months and months to clear out of the system. So the market is essentially pricing in and looking at inflation, Fed rate hikes, tighter monetary conditions, probabilities of a recession. Bitcoin is a global 24 seven asset that's on a comparative basis. I mean on the weekend, it's the only thing that is liquid. So investors really are expressing their views on that future using Bitcoin almost as a bit of a macro index, so to speak. And I actually expect that to continue to grow where Bitcoin almost becomes a bit of an industry for global macro conditions, both on the upside and the downside. Now, one thing I will say is that I mentioned that accumulation, all these things aren't an immediate impact. This is why bear markets take months to years. Even though there is that wall of stoic investors who are accumulating at all times, there still is a price will correct until that demand level is met. So now I would like to ask you the 100 million dollar question, which is probably what our audience, what our viewers are also wondering, which is where is the bottom? Can we point at the bottom looking at all these metrics that you have access to? Now, in terms of trying to assess this really, what we have tools, and I mentioned this earlier, it's about confidence. So we covered in our recent newsletter called Is This Time Different, where we actually look across many, many metrics, whether it's our macro oscillators that map hodler accumulation behavior, their spending behavior, what we're seeing in terms of pricing models. There's some pricing levels which have never been broken before. Is this time different? Maybe. But what we at least have there is a suite of metrics and a suite of concepts that are all telling a very similar story. And what we're trying to essentially assess is where is that maximum threshold that we've seen a full expulsion of, I guess, weaker hand investors or forced sellers. In previous cycles, when have we seen a similar level of pain that triggered the complete sellout of those investors? And in many ways, we're approaching that level. Thanks a lot, James, for coming on our show today. Hope to see you soon. Much appreciated. Thanks for that. Good to be here.