The long-term profitability of Bitcoin (BTC) has declined to levels last seen during the previous bear market in December 2018. According to data provided by cryptanalytic firm Glassnode, BTC holders are selling their tokens at an average loss of 42%.
The current market downturn, which is contributing to lower profitability, can be attributed to several macroeconomic factors. The BTC market is still highly dependent on the stock market, especially technology stock prices, which are currently experiencing an even bigger downtrend than cryptocurrencies. Rising inflation, added to the already apparent inability of central banks to control it, is also making things worse for long-term investment in BTC. The US is technically already in recession (as the term is defined) as the economy contracted 0.6% in the second quarter of this year after a similar contraction in the first quarter, (according to the latest US GDP estimate by the Bureau of Economic Analysis). At the same time, US Federal Reserve Chairman Jerome Powell still says that the central bank will continue to raise interest rates until the 2% inflation target is reached, even at the risk of deepening the economic recession. With fewer and fewer long-term investment opportunities, traders and long-term holders are shifting to short-term profitability and riskier assets.
This transition is also very visible in the sale of bitcoin assets by BTC miners, who have historically been long-term holders in anticipation of higher returns. Rising energy costs, coupled with growing mining difficulties, have narrowed the profit margins of these miners, forcing them to settle for short-term profits. The balance of bitcoin miners has experienced a significant outflow as prices have long since deviated from the local high of $24.5k, which suggests that the total profit of miners is still under some pressure. While bitcoin churn from miners fluctuates between 6,000-8,000 BTC monthly, market data suggests that a decline in the price of bitcoin to around $18,000 could result in a monthly churn of over 8,000 BTC.
The situation is aggravated by the ever-increasing confrontation between the executive and legislative branches in the United States. It is clear that they both want approximately the same thing, but they approach this task with different methods – on the one hand, legislatively, on the other, by creating the institution of appropriate judicial precedents. So, last week, US Senator Bill Hagerty, a member of the Senate Banking Committee, introduced legislation protecting cryptocurrency exchanges from “certain” enforcement actions by the Securities and Exchange Commission (SEC). The “Digital Commerce Clarity Act of 2022” aims to provide regulatory clarity on two major issues that crypto exchanges face: (1) the classification of digital assets and (2) the associated obligations under current securities laws. Regulatory uncertainty, according to Senator Hagerty, discourages investment in the cryptocurrency space and hinders job creation in the US. As a result, the blockade “endangers the United States’ leadership in ever-evolving technology at such a critical time.” The senator believes that once passed, the legislation will not only provide “much-needed certainty” for the crypto business, but will also improve the growth and liquidity of the U.S. cryptocurrency markets.
At the same time, both the Securities and Exchange Commission (SEC) and the US Commodity Futures Trading Commission (CFTC), whose powers have not yet been clearly identified or separated, are starting another round of judicial determinations for cryptocurrency assets. Regulators, including the CFTC and SEC, have been criticized by many in the crypto space for taking a “regulation by enforcement” approach to cryptocurrencies in the United States. Amid ongoing SEC litigation against Ripple over whether XRP sales violate securities laws, ongoing litigation over transactions on the Ethereum network, the CFTC has filed a complaint against Digitex LLC and its founder and CEO Adam Todd for not registering a crypto futures exchange and manipulating the price of native exchange token (DGTX).
As a result of the combination of all these and some other factors (for example, the energy crisis in the EU), the return on long-term investment in BTC, added to the profitability of mining, has reached a multi-year low. And further downward movement to support levels of $16.5-14.5 thousand is expected. One of the key reasons for this forecast is the high correlation between S&P and BTC. If we look at the current situation, we will see that most likely we will face a market crash similar to 2008.
Against this background, it would be reasonable to assume that a decision is needed on at least a medium-term investment of fiat and cryptocurrency assets in projects that provide for a stable income that obviously exceeds inflationary expectations and losses from a possible repetition of the mistakes of previous periods and a recession. One of these investment projects, offering a simple and elegant solution for potential investors, is the ASTL project – an investment in the development of the real sector of both mining and staking for a portfolio of various cryptocurrencies, with a reasonably high level of return – ROI up to 18% with payouts according to the size of the investment in stablecoin (USDT). More information about the proposals of the ASTL investment project can be found on the website.
