Any drop in the price of a digital asset like bitcoin is scary. There is still uncertainty about a price recovery or even the possibility of further price declines.

Bitcoin is down as much as 40% from recent highs. As a result, many fear the start of a protracted bear market similar to the downtrend seen in 2018.

Worst case scenario

After a poor second half of 2021, Bitcoin is no different in 2022. Last month, the fear and greed index fell to alarming levels. It came in at number 22, described as “extreme anxiety.” Currently, BTC has recovered in both price and sentiment (at 51 = neutral).

Quantitative research firm CryptoQuant has shed light on this through a report. According to the company, the two most recent major bear markets have been in 2017-18 and 2020. But those markets are more specific than today. Take a look at the following chart analyzing bitcoin losing supply.

The source: CryptoQuant

During the 2018 drop (which lasted 11 months), the price floor was “~$6,400 with multiple dead cat ricochets, with the price increasing by as much as 80%. During this bearish phase, supply loss percentage increased by +20% due to buys/hodls at prices above ~$6,400.” Comparing the current situation to the above situation, the report states:

“Assuming the second ATH is a dead stone’s hop in a bear market, the supply loss rate is up +6% so far, while the price is up +130% to $69,000. Therefore, a prolonged bear market cannot be ruled out.”

Worst-case scenario, Bitcoin could bottom at $29,000. However, the current rally has generated a lot of bullish anticipation. At press time, Bitcoin remains above $44,000 with a 1.2% gain.

HODL

After a massive spike in the number of coins on exchanges during the 2018 and 2020 bear markets, foreign exchange reserves are now flat. This number remains roughly the same as a year ago. So even though people are scared, they’re still HODLing.

The source: CryptoQuant

The rise in HODLer net positions means they are holding up longer. In contrast, during the bear market of 2018 and mid to late 2020, holders spent coins instead of HODL.

Even the stablecoin supply ratio (SSR) paints a bullish picture. In a series of tweets, the team highlighted this indicator and the green signal in the chart below.

1/ Stablecoins Supply Ratio indicates that there are relatively many stablecoins compared to the supply of Bitcoin.

“Stablecoin Supply Ratio Bullish Signal” by @TradingRage https://t.co/mopygsoHPc

— CryptoQuant.com (@cryptoquant_com) February 14, 2022

“The ratio of stablecoin supply shows that there are relatively many stablecoins relative to bitcoin supply.”

Glassnode analyst TXMC argues:

“Looking at everything BTC HODLers have endured in 2021, 3m global risk level, 48% of real cap still held 3-12m ago after falling back to feared $33k, I wonder: with all the FUDs priced in now, minus the contingencies, who else is selling?

The source: TXMC

The attached chart shows how the number of coins that last moved 3 to 6 months ago (when the price surged to an all-time high of $69,000) is increasing in proportion to total BTC supply.

Despite what can be seen in the portfolio, the bear market has not happened yet. But does it happen in the end? Probably.

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