It's been a near-unprecedented year of extremes and black swan events for the crypto market, and now that 2022 is about to wrap up, analysts are reflecting on the lessons learned and attempting to identify the trends which may point to bullish price action in 2023. 

The collapse of Terra Luna, Three Arrows Capital and FTX created a credit crunch, a severe reduction in capital inflows and an increased threat that additional major centralized exchanges could collapse.

Despite the severity of the market downturn, a few positives have emerged. Data shows long-term hodlers and smaller-sized wallets are actively accumulating during this period of low volatility.

Let’s dive in on the positive and negative data points.

Low liquidity and losses abound

When liquidity was flooding into the market in November 2021, Bitcoin 

BTC

$16,823

 price hit an all-time high and investors realized $455 billion in profits. Conversely, as liquidity tightened in what many investors hoped were the darkest days of the bear market, $213 billion in realized losses led to investors giving back 46.8% of the peak bull market profits. The magnitude of the profits versus realized losses is similar to the 2018 bear market, when the ratio retraction from gains hit 47.9%.

In the thread below, Cumberland, a major liquidity provider within the crypto sector, highlighted the liquidity challenges facing the market:

According to Cumberland, the limited liquidity is a result of large-scale capitulations, leaving bankrupt firms with no remaining coins to sell.

CoinShares' analysis of weekly fund flows also showed trading volumes reaching a new two-year low of $677 million for the week. The low trading volumes are coupled with crypto funds flowing out of digital assets, further hampering potential upside.

Historically, centralized exchanges (CEX) have been a source for fiat onboarding which helps bring more capital into the crypto asset space. Due to regulatory concerns and CEX fears, bringing in new funds has become challenging.

While the above data is very bearish, the market also has some data points that may point to a reversal.

Minimal improvements in investor sentiment appears

While traders are hoping for a positive Federal Reserve meeting that will reverse the short-term bearish trend, there are on-chain data points showing sentiment making some marginal improvements.

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

"Bitcoin saw inflows totalling $17 million, sentiment has been steadily improving since mid- November with inflows since then now totalling $108 million."

While these numbers are not groundbreaking, Bitcoin’s low volatility offers investors an opportunity to dollar-cost average and await a potential trend reversal. Current volatility is at multi-year lows for Bitcoin, reaching figures last witnessed in October 2020.

Record lows in volatility is coupled with a new all-time high in long-term Bitcoin hodlers cohort. Even as the price of BTC remains in a downtrend, 72.3% of all circulating Bitcoin supply is now in the hands of long-term hodlers.

Glassnode notes that data shows:

“The near linear uptrend in this metric is a reflection of the heavy coin accumulation that occurred in June and July 2022, immediately after the deleveraging event inspired by 3AC and failing lenders in the space.”

Adding to this perspective, former BitMEX CEO Arthur Hayes believes Bitcoin has bottomed after a handful of bankruptcies flushed irresponsible entities from the space.

While the uptick in sentiment and institutional investor inflows is not substantial enough to trigger a trend reversal, the positive data points show some signs of recovery.