NEW YORK (BLOOMBERG, REUTERS) - The bear market for Bitcoin has entered its “deepest and darkest” phase, with even long-term holders who had toughed it out until now coming under extreme pressure.

That’s according to strategists at Glassnode, which tracks an indicator known as realised price, the average purchase price of all Bitcoins in circulation. The cryptocurrency is currently trading roughly US$1,000 below the coin’s current realized price of US$23,430, according to the firm.

Bitcoin dropped as much as 5.2 per cent to US$20,833 early Wednesday (June 15) in London. 

“The current bear market is now entering a phase aligned with the deepest and darkest phases of previous bears,” the strategists wrote in a note. “The market, on average, is barely above its cost basis, and even long-term holders are now being purged from the holder base.”

Market watchers have become preoccupied with figuring out which cohorts of investors are getting hurt the most during the current crypto winter. With Bitcoin now hovering around December 2020 lows, many newer entrants are now underwater.

Meanwhile, UBS strategists are monitoring Bitcoin miners - whose businesses have been under pressure due to high energy costs and capex commitments - for potential signs of capitulation, which could also have an impact on prices.

Bitcoin’s slump is already having ramifications for other companies exposed to the crypto market.

On Tuesday, cryptocurrency exchange Coinbase Global said it would slash 18 per cent of its workforce, or about 1,100 jobs, as part of efforts to rein in costs amid volatile market conditions. Crypto lending platform BlockFi said on Monday it would lower headcount by about 20 per cent, while Singapore-based crypto exchange Crypto.com said last Friday it would axe about 260 employees or 5 per cent of its workforce.

Digital-asset investors have been partially spooked by crypto lender Celsius Network pausing withdrawals, swaps and transfers, though the broader market remains under duress after a key inflation print came in hotter than expected last week, meaning that the Federal Reserve will have to be aggressive in its attempts to cool rising prices. 

Lori Calvasina, head of US Equity Strategy at RBC Markets, said she’d like to see Bitcoin stabilize. “It has become another helpful indicator of sentiment and risk assets generally,” she said on a podcast. 

Meanwhile, Glassnode strategists said that a change in the net position of HODLers - the staunchest investors who refuse to sell - can be used to estimate the magnitude of coin volume they’re accumulating or distributing. That reading suggests that approximately 15,000-20,000 Bitcoins per month are transitioning into the hands of HODLers, a decline of 64 per cent since early May, an indication of weakening accumulation.

Bitcoin has fallen more than 30 per cent this month. Its decline Wednesday marks its ninth straight day of losses, with the rate of change over the past three days at 24 per cent - the starkest drop in its history. 

“Bitcoin trades like a penny stock,” Brian Nick, chief investment strategist at Nuveen, said in an interview. “There’s all kinds of reason to think that once it starts falling quickly, it can continue to fall. If it can move 20 per cent in two days, it can move another 20 per cent the next two days.

'Panic'

Celsius, which had around US$11.8 billion in assets, offers interest-bearing products to customers who deposit crypto at its platform. It then lends out coins to earn a return.

"The market is now panicking about the impact and contagion if Celsius becomes insolvent," wrote Singapore fund manager QCP Capital in a note.

Crypto investors were already rattled by the collapse of the TerraUSD and Luna tokens in May which were shortly followed by Tether, the world's largest stablecoin, briefly breaking its 1:1 peg with the dollar.

Celsius's move to suspend withdrawals has raised fresh questions about regulatory oversight of such crypto-lending platforms.

On Tuesday, US Securities and Exchange Commission chair Gary Gensler told an event that such platforms were operating akin to banks, and questioned how they could offer such large returns.

"I caution the public. If it seems too good to be true, it just may well be," he added.