Most of the Bitcoin supply is now loss-making

Key points

• Bitcoin was the best performing asset class between 2011 and 2021, but 2022 has brought nothing but pain
• After a 14-fold rise from its pandemic low in March 2020 to its all-time high in November 2021 of $68,739, Bitcoin has struggled in a risk-averse environment
• The decline was so severe that most of the supply is now loss-making

What a journey it was for Bitcoin.

But as we close the 2022 chapter, the party has turned into a nightmare for most. Literally most. Because the majority of Bitcoin’s supply, which as of this writing is 19.24 million Bitcoins, is in a losing position.

I have written about this trend before, and as the chart above shows, we previously saw more than 50% of the supply in a losing position. But after a pause, the market has moved back down following the exposure of a certain Mr. Bankman-Fried.

But it’s a pretty sobering statistic when you consider that Bitcoin was the best-performing asset class in the world in the decade between 2011 and 2021. It exploded from fractions of a penny to nearly $69,000 last year and made a lot of people very, very rich.

But for anyone who bought it during the pandemic, the story is probably very different. Tracing the chart above back over the course of the decade shows the ups and downs clearly.

An unprecedented macro environment for Bitcoin

The only thing that stands out is that for the first time in Bitcoin’s history, it is now experiencing a bear market in the overall economy.

Bitcoin was launched in 2009 and had one of the longest and most explosive bull markets in financial history through 2022. Risk assets across the board soared, with the S&P 500 posting a 7x return from its low point during the Great Financial Crash to its early 2022 levels.

“This year has seen many scandals and idiosyncratic risks in the cryptocurrency space. Nonetheless, despite the violent events in the crypto industry that have undoubtedly made things much worse, Bitcoin has plummeted due to the broader macro environment, making a mockery of any notion that Bitcoin is not a high-risk asset,” said Max Coupland, director of CoinJournal, when assessing Bitcoin’s price action in 2022.

In this sense, everything looks healthy when you plot Bitcoin’s price level against the S&P 500. However, I cut the chart off at the beginning of 2022.

The chart below then does the same thing – plots the S&P 500 against Bitcoin. Only this time, it focuses on the year 2022, showing that both the stock market and Bitcoin have crashed.

“Bitcoin is uncorrelated” narrative is over

Of course, the narrative that Bitcoin is uncorrelated is over. Not only that, but the misguided thinking that led some to conclude that Bitcoin is an inflation hedge has been proven foolish.

There is no other way to put it – Bitcoin was traded like a high-risk investment.

In fact, it traded like a high-risk asset that not only delivered the best performance of the decade between 2011 and 2021, when markets were soaring and all these risky assets were making meteoric gains, but now, as we see the flip side of the coin, it has underperformed almost everything else.

It has fallen so sharply that the gains that gave it the title of best-performing asset are now insufficient to prevent most of the supply from being held by investors who are recording losses.

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Research methodology