"Investors are more likely to sell and crystallize losses when they believe the market will fall further, undermining the HODLer mentality."
Crypto is closer to the bottom than other assets, CoinMarketCap's head of research says.
Alice Liu pointed to the fact that Bitcoin has plunged 30% in the past week alone — with Terra's collapse and Celsius Network's financial woes piling pressure onto the crypto ecosystem of late.
To compound the problem, a slew of margin calls has flushed out leverage within the market. She said:
"All these events have already allowed it to price in a high degree of negative sentiment within the crypto market."
The total market cap of all cryptocurrencies has shed $379 billion in the past month — and that's a decline of 28%.
Liu also pointed to how the Crypto Fear and Greed Index has plunged to 7 this week — indicating there's "Extreme Fear" among investors. This is the lowest level we've seen since March 2020, when the World Health Organization declared that coronavirus was a pandemic.
She also argues that this crypto winter is different to the one that was witnessed back in 2018, when BTC plunged by more than 80% in over a year.
"For the first time crypto is going into a bear market when the global markets are also expected to go into a negative outlook... When the global economic outlook isn’t bright, it amplifies the fear in crypto."
Our analyst explained that this "hurts crypto in two ways."
"Firstly, investors are more likely to sell and crystallize losses when they believe the market will fall further, undermining the HODLer mentality. Secondly, there is less willingness to 'buy the dip' at current levels when the price is expected to fall further."
Bitcoin has so far resisted a fall below the psychologically significant threshold of $20,000, with Ether remaining above $1,000 for now.
Losing these levels could cause sell-offs to accelerate.
BTC's 52-week low stands at $20,178.38 — just $90 away from $20,089, 2017's all-time high.