Key Points
- Between 2011 and 2021 Bitcoin was the best-performing asset class, but 2022 brought significant pain
- After rising roughly 14-fold from its pandemic low in March 2020 to its all-time high of $68,739 in November 2021, Bitcoin has struggled in a risk-averse environment
- The decline has been so severe that most of the circulating supply is now held at a loss
What a ride it has been for Bitcoin.
Yet as we close the chapter on 2022, the party turned into a nightmare for many. In fact, the majority of Bitcoin supply—currently about 19.24 million coins at the time of writing—is now underwater and held at a loss.
I’ve written about this trend before. As the chart above shows, we have previously seen more than half of the supply underwater. After a brief pause, the market resumed its downward move following the revelations surrounding a certain Mr. Bankman-Fried.
It’s a sobering statistic considering that Bitcoin was the best-performing asset class worldwide during the decade from 2011 to 2021. It surged from fractions of a penny to nearly $69,000 last year, creating vast wealth for many early and well-timed holders.
For those who bought during the pandemic however, the picture looks very different. Tracing the chart across the decade highlights the dramatic peaks and troughs Bitcoin has experienced.
An Unprecedented Macro Environment for Bitcoin
One notable change is that, for the first time in Bitcoin’s history, it is experiencing a bear market inside a broader economic downturn.
Launched in 2009, Bitcoin enjoyed one of the longest and most explosive bull runs in financial history through 2021. Risk assets across the board surged: the S&P 500, for example, returned roughly seven times from its Great Financial Crisis low to its early-2022 levels.
“This year has seen many scandals and idiosyncratic risks in the crypto space. Nevertheless, Bitcoin has plunged because of the broader macro environment, and the severe events in the crypto industry have only made things worse — turning the idea that Bitcoin is not a high-risk asset into a punchline,” said Max Coupland, Director of CoinJournal, when assessing Bitcoin’s price action in 2022.
Viewed against the S&P 500, Bitcoin’s price level looks healthy in long-term terms; however, I clipped the chart at the start of 2022.
The next chart compares the S&P 500 with Bitcoin but focuses specifically on 2022, illustrating that both the equity market and Bitcoin fell sharply during the year.
The “Bitcoin Is Uncorrelated” Narrative Is Dead
The narrative that Bitcoin is uncorrelated with traditional markets is over. Likewise, the belief held by some that Bitcoin is a reliable hedge against inflation has proven misguided.
Plainly put: Bitcoin has been traded like a high-risk asset.
Not only did it outperform nearly everything else between 2011 and 2021 during a prolonged risk-on environment, it has now underperformed many assets as we experience the reverse — a sharp risk-off environment.
The decline has been large enough that earlier gains no longer prevent most of the circulating supply from being held by investors in loss positions.
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Research Methodology
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On-chain data sourced from Glassnode
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S&P 500 and Bitcoin price data sourced from Yahoo Finance
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Bitcoin’s status as the “best-performing asset class 2011–2021” referenced from Yahoo Finance