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Time In The Market Vs. Timing The Market: Why Even Long-Term Holders Lose Money In Crypto

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How many Bitcoin investors are really in profit?

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Research
One Button Capital
July 24, 2022
Jul 24

Since the end of last year, the volatility of the global markets has made many traders and investors feel nervous about an upcoming recession.

The historically unstable cryptocurrency market is currently experiencing a horrific collapse from its all-time high in November 2021, losing over $2T of its market cap.

Even Bitcoin and Ethereum, which are regarded as safer investments by a large number of analysts, have reached their lowest prices in this bear market trend, trading at as low as $17,800 per BTC and $900 per ETH.

Profit and Loss Supply

The supply in profit/loss is an on-chain metric that indicates how much of the entire crypto supply is now profitable or losing money.

The price of Bitcoin dropped below the $20,000 level on June 18, 2022, and the selling pressure cause an even further price drop. Many investors are losing money, and a massive amount of Bitcoin supply is at a loss.

Here’s a graph that indicates the profit trend in Bitcoin supply from 2011 to June 2022:

Data Source: Glassnode

The percentage of Bitcoin supply in profit has decreased in recent months, and more and more investors are losing money, as shown in the graph above.

As of June 2022, the indicator’s value is about 49%. Historical bear market floors have bottomed between 40% and 45% of supply in profit.

Following a drop from the peak in 2018/2020, the metric’s value approached comparable levels of approximately 45–55%. If the trend continues, the losses may reach up to 70%, which is comparable to 2015 data as shown in the graph below:

Data Source: Glassnode

When we evaluate the net unrealized profit/losses (NUPL), we find that nearly all wallet groups — from small investors to whales — hold enormous unrealized losses that are worse than those of March 2020.

The least profitable wallet group has unrealized losses of 30% of the Market Cap and holds 1–100 $BTC.

Data Source: Glassnode

Bear market extremes have historically been reached with Bitcoin downturns of between -75% and -84% from the all-time high (ATH), lasting between 260 and 410 days in 2019–20 and 2015, respectively.

Data Source: Glassnode

This bear market is now well within historical norms and severity, with the current fall hitting -73.3% below the Nov-2021 ATH and lasting between 227 and 435 days. So this is a bear market of historic proportions, with new records of accumulated losses for all wallet cohorts.

All the graphs essentially show that (most) short-term traders and long-term investors are losing a lot of money in crypto.

Key Statistics

Crypto trading has seen people turn into overnight millionaires, but that is an extremely small minority. The majority, rather than earning consistent profits over a long period, wind up losing money.

However, statistics and evidence are essential to back up this claim. Here we look at some key statistics that are carefully picked from different research studies, reports, and market data that will give you an idea of its difficulty.

Traders Lose Money

  • Within the first 2 years, 80% of day traders quit. For nearly 40% of traders, a month or less.
  • Only 13% of traders continue to do so after three years. Only 7% of those who started five years ago are still actively trading. (Research Gate)
  • The typical individual investor loses 1.5% per year when compared to the market index. Annually, active traders underperform by 6.5%. (The Journal of Finance)
  • Between 1995 and 2006, another study of day traders in Taiwan revealed that just 5% of them were profitable. (Berkeley)
  • According to research on Brazilian day traders, 97% of those who traded for more than 300 days lost money, while only 1.1% made money. (SSRN)

Bitcoin Losing Value

  • Bitcoin has lost more than 50% of its value this year and is down 70% from its all-time high. (CNBC)
  • Over 158,000 crypto traders have lost all their funds. (Nairametrics)
  • Realized losses ballooned to a record of over $7 billion at the beginning of June 2022. (Glassnode)

Some cryptocurrency investors believe prices may decline much more given the current macroeconomic climate, which includes the Federal Reserve raising interest rates to combat excessive inflation. I’d say, it is a good opportunity to review your asset allocation right now, especially if you are a long-term investor.

eToro Study

Research of eToro day traders revealed that roughly 80% lost money over a year, with a median loss of 36%. (eToro)

Emotions can lead to expensive errors and poor judgment. It’s challenging to avoid letting emotions influence your decisions because of the news, market volatility, other people telling you what to do, and your affinity to specific assets. Do not let your feelings of excitement or concern regarding the market control how you behave. Instead, exercise patience and faith in your strategy.

Conclusion

The bulk of traders and investors are unaware that the actual number of individuals who lose money in crypto is greater than those who are profitable. Most traders give up after suffering financial losses, particularly novice traders who struggle to advance in the market.

Researching the reality of how crypto trading works may be the most effective instructional tool for novice traders and those looking to turn a profit from cryptocurrency, especially in light of all the hype merchants who guarantee you can trade your way to riches.

Time in the market or simply holding an asset long-term is a great passive way of investing, but it comes with risks as well. Having more than one investing strategy in your arsenal is crucial for any investor to not lose money during a bear market.

Timing the market is a more active way of investing but relies on high precision and professional skills. Instead of spending years learning how to read price charts and indicators, nowadays you can let AI technology manage your portfolio and do all the active trading for you.

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We regularly prepare insightful reports and case studies about crypto trading and the blockchain industry.

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