It has been a near-unprecedented year of extremes and a black swan for the cryptocurrency market, and now that 2022 is drawing to a close, analysts are reflecting on the lessons learned and trying to identify trends that might point to bullish price action in 2023.

The collapse of Terra Luna, Three Arrows Capital, and FTX has led to a credit crunch, a sharp drop in capital inflows, and a growing threat of possible collapse of additional major centralized exchanges.

Despite the severity of the market downturn, some positives emerged. The data shows that long-term dealers and small-cap portfolios are actively accumulating during this period of low volatility.

Let’s dive into the positive and negative data points.

Low liquidity and many losses
When liquidity was pouring into the market in November 2021, Bitcoin

pointers down

The price reached an all-time high and investors made $455 billion in profits. Conversely, with liquidity tightening in what many investors hope will be the darkest days of the bear market, realized losses of $213 billion have caused investors to give up 46.8% of the bull market’s peak earnings. The volume of gains versus losses realized is similar to the bear market of 2018, when the gain-to-return ratio was 47.9%.

The annual amount of realized bitcoin gains and losses. Source: glassnode
In the topic below, Cumberland, a major liquidity provider in the crypto sector, highlights the liquidity challenges facing the market:

According to Cumberland, the limited liquidity is the result of large-scale concessions, leaving bankrupt companies with no coins left to sell.

CoinShares’ analysis of weekly money flows also showed that trading volumes reached a two-year low of $677 million for the week. Low trading volumes coupled with an influx of cryptocurrency from digital assets further dampens a potential upside.

Cryptocurrency flows as a percentage of the AuM fund. Source: CoinShares
Historically, centralized exchanges (CEX) have been a source of cash entry that helps bring more capital into the crypto-asset space. Because of regulatory concerns and CEX concerns, bringing in new money has become difficult.

While the above data is very bearish, the market also has some data points that could signal a reversal.

Shows minimal improvements in investor sentiment
While traders are hopeful for a positive Fed meeting that will reverse the short-term bearish trend, there are on-chain data points that show some marginal improvements are being felt.

CoinShares states that even with CEX concerns and smaller volumes, inflows are improving:

“Bitcoin saw inflows totaling $17 million, and sentiment has been steadily improving since mid-November with inflows since then totaling $108 million.”
While these numbers are not groundbreaking, Bitcoin’s low volatility provides investors with an opportunity to get an average dollar cost and wait for a possible trend reversal. Current volatility is at multi-year lows for Bitcoin, reaching numbers last seen in October 2020.

Realized bitcoin volatility. Source: Glassnode
The record drop in volatility is paired with a new all-time high in the long-term Bitcoin purveyors group. Although the price of BTC is still in a downtrend, 72.3% of all circulating supply of Bitcoin is now in the hands of long-term hackers.

The total supply of Bitcoin held by traders for the long term. Source: Glassnode
Glassnode notes that the data shows:

“The near linear uptrend in this metric is a reflection of the heavy currency buildup that occurred in June-July 2022, immediately after the 3AC-inspired deleveraging event and the failure of lenders in the space.”
Adding to this perspective, former BitMEX CEO Arthur Hayes believes that Bitcoin has bottomed out after a handful of bankruptcies drove irresponsible entities out of the space.

While the sharp increase in sentiment and inflows of institutional investors is not large enough to trigger a trend reversal, the positive data points are showing some signs of recovery.