The year 2022 was a challenging period for the digital asset space. The collapse of former industry giants like Terra, Three Arrows Capital (3AC), and FTX caused significant disruption across the sector.
Market sentiment hit low points, and prices fell dramatically. The total cryptocurrency market capitalization declined by over 71% from its peak, wiping out more than $2.2 trillion in value in just over a year.
But could the worst be behind us?
Industry expert Chris Burniske believes so. A partner at venture capital firm Placeholder, Burniske is a seasoned crypto native who has experienced multiple market cycles. He authored one of the earliest books on crypto investing and was among the first buy-side analysts to cover the asset class.
Notably, he predicted this bear market, anticipating the market top in November 2021 and urging caution during the July-August rally.
Now, at a time when many are questioning the future of crypto, Burniske has turned bullish and suggests we may have already found the bottom.
In a recent discussion, he laid out his reasoning for calling a market bottom. Below, we explore the core reasons behind his optimistic outlook.
Key Factors Supporting a Market Bottom
Absence of Forced Sellers
A crucial reason supporting the bottom thesis is the apparent absence of large, forced sellers.
Many anticipated that the fall of FTX would trigger a second credit crisis following the Terra collapse, leading to another wave of widespread contagion. However, this did not materialize.
Instead, the FTX collapse may have been the final significant event in a series of deleveraging actions that began with the UST failure. Major liquidations and unwinding of positions have largely already occurred.
It is now difficult to identify who the next major forced seller might be. The industry is in a stronger position to weather further shocks, as the state of credit within crypto—and traditional finance—is more stable than during the earlier Terra and 3AC incidents.
While some bankruptcies may still occur, these are unlikely to create immediate selling pressure, as assets held by bankrupt entities are typically auctioned off at a later stage.
There remains a risk of fund redemptions leading to selling at month-end, but the market impact is expected to be limited, as most affected funds have likely already faced outflows.
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Bitcoin Is in a Deep Value Zone
Multiple on-chain, technical, and quantitative indicators suggest Bitcoin is trading within a deep value zone—a concept referring to assets trading significantly below their intrinsic worth.
One metric supporting this view is the Market Value to Realized Value (MVRV) ratio. This indicator approximates the total value paid for all existing coins based on the price at which they last moved on the blockchain.
When the MVRV ratio falls below 1, it often indicates that most investors are holding at a loss, reducing the likelihood of panic selling.
Another on-chain metric, daily active addresses, surged to 1.07 million on November 9, coinciding with a local price bottom. This was the highest single-day count since the summer crash, suggesting new buyers are entering the market.
Historically, Bitcoin’s 200-week simple moving average (SMA) has also served as a reliable support level during bear markets.
Additionally, perpetual futures funding rates have turned negative, meaning short positions are paying long positions—a sign that bearish sentiment may be overextended.
Although miner capitulation remains a risk, increased institutional participation in Bitcoin mining may reduce the selling impact compared to previous cycles.
Strong Ethereum Fundamentals
Ethereum’s robust fundamentals also suggest the market may be bottoming.
Chris Burniske believes the effects of the Merge—Ethereum’s transition to proof-of-stake—are beginning to positively influence its market structure and flow dynamics.
Notably, during the deepest sell-offs in November, ETH’s price bottom was higher than during the Celsius and 3AC crises. This resilience is attributed to the Merge, which eliminated miner selling pressure and shifted ETH toward a deflationary issuance model.
Beyond market structure, Ethereum’s application layer has demonstrated strength throughout the crisis. Major DeFi protocols operated without interruption, lending markets maintained solvency, and decentralized exchanges facilitated billions in volume.
This operational resilience has not gone unnoticed by institutional capital allocators closely watching the space.
From a technical perspective, ETH is also trading below its 200-week moving average, suggesting it is in a value zone. For a sustained recovery, however, it must reclaim this key level.
Improving Macroeconomic Conditions
Macroeconomic improvements provide another reason for optimism.
Despite ongoing concerns about economic growth, changing macro conditions may favor a market bottom.
Rising interest rates weighed heavily on risk assets in 2022. The sharp increase in risk-free rates led to multiple compressions in equity markets, as investors became less willing to accept high valuations.
As a result, high-growth technology stocks—particularly those on the Nasdaq, to which crypto has shown correlation—experienced a downturn reminiscent of the dot-com bubble.
However, a key difference is that many of today’s companies maintain strong fundamentals, with firms like Meta continuing to generate substantial free cash flow and dominate their verticals.
Inflation, the primary driver of monetary tightening, is also showing signs of cooling. Recent Consumer Price Index (CPI) and Producer Price Index (PPI) reports have come in softer than expected.
As Burniske notes, markets are sensitive to the “rate of change”—meaning that even a slowdown in negative trends can be interpreted positively.
Convergence of Positive Factors
With the post-LUNA deleveraging cycle largely complete, bullish on-chain and technical indicators for major cryptocurrencies, and a gradually improving macroeconomic backdrop, conditions are aligning for a potential market bottom.
Burniske anticipates that 2023 will be marked by significant volatility, similar to the last bear market. There may be false rallies followed by downturns.
Nevertheless, the convergence of these factors is strong enough to suggest that the worst—at least in terms of price—is likely behind us.
Frequently Asked Questions
What does “crypto market bottom” mean?
A market bottom refers to the lowest point in prices during a downward cycle. It is often characterized by extreme pessimism, low trading volumes, and the absence of major sellers, suggesting that prices may not fall further.
How is the MVRV ratio used in crypto analysis?
The Market Value to Realized Value (MVRV) ratio compares Bitcoin’s market capitalization to the value at which coins were last transacted on-chain. A ratio below 1 often indicates that most holders are at a loss, which can signal a bottom.
Why did Ethereum outperform during recent sell-offs?
Ethereum’s transition to proof-of-stake reduced selling pressure from miners and improved its issuance model. Additionally, the resilience of its DeFi ecosystem during market stress increased institutional confidence.
How do macroeconomic factors influence crypto prices?
Crypto markets are sensitive to interest rates and liquidity conditions. When central banks tighten monetary policy, risk assets like crypto often underperform. Conversely, expectations of easing can support prices.
What are perpetual futures funding rates?
Funding rates are payments between long and short traders in perpetual futures markets. Negative rates indicate that shorts are paying longs, which can signal oversold conditions and a potential reversal.
Is now a good time to invest in cryptocurrency?
While some indicators suggest prices are at attractive levels, investing in crypto remains speculative. It is important to conduct thorough research, understand the risks, and only invest what you can afford to lose.