Key Points
- Bitcoin was the best-performing asset class between 2011 and 2021, but 2022 brought considerable pain.
- After rising roughly 14-fold from the March 2020 lows to an all-time high of $68,739 in November 2021, Bitcoin struggled amid a risk-off environment.
- The drawdown was severe enough that the majority of Bitcoin supply is now held at a loss.
What a ride it’s been for Bitcoin.
But as we closed out 2022, the rally turned into a nightmare for many investors. Indeed, the bulk of Bitcoin supply — roughly 19.24 million BTC at the time of writing — sits underwater.
I have previously written about this trend, and the chart above shows we have crossed the point where more than half the supply is at a loss before. After a pause, the market shifted back into a downturn following the exposure of the Bankman-Fried scandal.
That statistic is sobering when you consider that across the decade from 2011 to 2021 Bitcoin was the world’s best-performing asset class. Its ascent from fractions of a dollar to nearly $69,000 last year made many investors very wealthy.
However, anyone who bought during the pandemic-era rally likely experienced a very different story. Extending the chart back over the past decade makes the cycles — booms and busts — abundantly clear.
A historic macro backdrop for Bitcoin
One obvious factor is that, for the first time in Bitcoin’s history, the asset is enduring a bear market within a broader economic downturn.
Bitcoin launched in 2009 and, until 2022, enjoyed one of the longest and most explosive bull runs in financial history. Risk assets across the board surged, with the S&P 500 delivering roughly sevenfold gains from its major crisis lows into early 2022.
“There were many scandals and idiosyncratic risks in the cryptocurrency space this year. While those developments undoubtedly made things worse for the industry, Bitcoin’s plunge was driven primarily by the wider macro environment, which reinforced the view that Bitcoin trades like a risky asset,” said Max Coupland, Director at CoinJournal, when assessing Bitcoin’s price action in 2022.
With that context, comparing Bitcoin’s price against the S&P 500 looks reasonable — the primary difference is that the chart cuts off in early 2022.
The chart below does the same comparison but focuses on 2022, illustrating how both the stock market and Bitcoin plunged together during the year.
The “Bitcoin is uncorrelated” narrative is dead
The long-held belief that Bitcoin is uncorrelated with traditional markets has been disproven. Likewise, the idea that Bitcoin reliably hedges inflation has been shown to be misguided.
Put simply: Bitcoin traded like a risky asset.
In fact, Bitcoin behaved like a high-risk asset that had been the decade’s top performer during the bull market years of 2011–2021, when risk assets produced astronomical returns. Now, in the reversal, Bitcoin has underperformed many other asset classes.
The drawdown was so deep that prior cumulative gains were insufficient to prevent the majority of Bitcoin holders from being in loss positions.
If you use our data, we appreciate attribution via a link to https://coinjournal.net. Crediting our work with a link helps us continue to provide data-driven research and analysis.
Research methodology
-
On-chain supply data sourced from Glassnode.
-
Price data for the S&P 500 and Bitcoin sourced from Yahoo Finance.
-
The claim that Bitcoin was the “best-performing asset class in 2011–2021” referenced from Yahoo Finance.