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Grayscale Report: If the market cycle repeats, the crypto winter has 250 days left

1658227842 19 Jul / 10:50

The cryptocurrency sector has undergone some infamous bear markets, and the downturn of 2022 will be recognized as a litmus test for decentralized financial systems and excessive leveraged trading.

According to Grayscale Investment's most recent Insight Report, the current bear market will begin in June 2022 and might endure for a further 250 days if past market cycles are any indication.

Grayscale observes that the cyclical swings of cryptocurrency markets mirror those of their traditional equivalents. Market cycles for Bitcoin (BTC) typically span four years or around 1,275 days. When the realized price of Bitcoin falls below the current market price, the company declares a cycle.

The realized price is calculated by dividing the total acquisition price of all assets by the asset’s market capitalization. This indicates the number of lucrative positions if any. Grayscale cites Wednesday’s crossing of the realized price of BTC below the market price as the beginning of the current bear market.

The company views this as an excellent investment opportunity, which is expected to continue for another 250 days beginning in July if the duration of prior cycles is repeated.

Grayscale depicts the 2012–2015 market cycle with events like the growth and fall of the dark web marketplace Silk Road and the infamous Mt. Gox scandal, precipitating the first significant bear market. The growth of Ethereum, significant exchanges and wallet providers contributed to the market’s slow ascent to new heights.

The years 2016 to 2019 will be known for the explosion of initial coin offerings enabled by Ethereum’s smart contract technology. Most of the capital that entered the cryptocurrency ecosystem at the end of 2017 departed in 2018 when the second big bear market began.

The market cycle of 2020 will be regarded as a tale of leverage. Grayscale observes that more significant government expenditure during the COVID-19 outbreak prompted investors to leverage trading.

A positive financing rate persisted for six months, with many traders using cryptocurrencies as collateral for leveraged bets. When cryptocurrency prices fell, traders were compelled to sell, which prompted a cascade of liquidations, resulting in BTC falling from a November 2021 high of $64,800 to a June 2021 low of $29,000.

A year later, leverage harmed the markets more, but sizeable centralized finance (CeFi) companies fell after drawing enormous investments with high rates. The rest is history since the ecosystem was consumed by the collapse of the US Terra stablecoin (UST). On several CeFi platforms, overleveraged traders and positions were liquidated, which worsened market sell-offs and brought down significant capital lending businesses in the industry, such as Celsius and Three Arrows Capital.

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