Bear Markets in Perspective FINAL Designed

Grayscale Insights | July 2022
Bear Markets
in Perspective
Bear Markets
in Perspective
1 By Matt Maximo, Research Associate & Michael Zhao, Research Analyst
5 Introduction 3
Crypto Market Cycles 5
A Brief History of Crypto Market Cycles 8
What’s Happening On-chain? 13
What’s Next? 19
©2022 Grayscale Investments, LLC
PLEASE REVIEW IMPORTANT DISCLOSURES & OTHER INFORMATION AT THE END OF THIS PAPER. 2
Introduction
1 October 31, 2008, a message goes out to the cypherpunk mailing list that reads:
A few months later, on January 3, 2009, a person or persons using the pseudonym
Satoshi Nakamoto initiated the Bitcoin Network. Thirteen years later, Bitcoin has
inspired an entirely new industry and a novel asset class worth nearly 1 trillion
dollars. While Bitcoin has been called the ‘Best Performing Asset of the Decade’,
after gaining more than 40,000,000%1 since inception, the journey has not always
been smooth.
FIGURE 1: EXPECTATION VS REALITY2
EXPECTATION
REALITY
1. Cumulative returns from 7/17/2010 to 7/4/2022 with Bitcoin Price data from Glassnode
2. Source: Grayscale Research. This graph is for illustrative purposes only and does not depict actual events. Past Performance is
not a guarantee of future results.
Born out of the 2008 Great Financial Crisis and economic recession,
crypto has grown from an idea in a nine page white paper about a
decentralized network to a trillion dollar industry innovating areas like
sustainable energy, finance, entertainment, art, and more. Although we’ve
experienced meaningful price declines and uncertainty continues to cloud
crypto markets, contextualizing where we are in this market cycle provides
perspective. The length, time to peak and trough, and recovery time to
1 previous all-time highs in each market cycle may suggest that the current
market may resemble previous cycles, which have resulted in the crypto
2 industry continuing to innovate and push new highs.
5
Crypto Market Cycles
Identifying Crypto Cycles

1
2 Like traditional economic and financial markets, crypto has cycles that ebb and
flow. Crypto market cycles, on average, last ~4 years or approximately 1,275 days.
3 While methods vary for identifying crypto market cycles, we can quantitatively
define a cycle by when the Realized Price moves below the Market Price (the
4
current trading price of an asset), using Bitcoin prices as a proxy. Note: we
5 exclude the cross in Realized Price below Market Price in March 2020 due to
extreme market volatility in response to the Covid-19 pandemic.
FIGURE 2: BITCOIN MARKET CYCLES: PRICE VS. REALIZED PRICE3
Re alized Price Price

2009 – 2011 2012 – 2015 Cycle 2016 – 2019 Cycle 2020 – Present Cycle
$100,000 Discovery (1290 Days) (1257 Days) (Currently 1191 Days)
Phase
$10,000
$1,000
$100
$10
Realized Price
$1 Price
$0
Jul-10 Apr-11 Jan-12 Oct-12 Jul-13 Apr-14 Jan-15 Oct-15 Jul-16 Apr-17 Jan-18 Oct-18 Jul-19 Apr-20 Jan-21 Oct-21
Realized price is the sum of all assets at their purchase price or realized market
capitalization, divided by the market capitalization of the asset which provides a
measure of how many positions are in or out of profit.
Realized Price = Realized Market Cap / Current Supply
A Realized Price below Market Price implies that most assets are held above the price
they were bought. Conversely, a Realized Price above Market Price implies that most
assets are held below the price they were bought. Determining when most assets are
held above the price they were purchased helps to identify when the market begins
to transition out of a bear market and into a new cycle (and vice versa).
3. Source: Glassnode, Grayscale Research
As of June 13, 2022, the Realized Price of Bitcoin crossed below the Market Price
signaling that we may officially have entered a bear market. In the natural pattern of
market cycles, some believe these points in the market cycle could present some of
the best opportunities to buy. The table below shows the average price of Bitcoin
during zones of Realized Price < Bitcoin Market Price. Just 21 days into this zone, we
may see another ~250 days of high-value buying opportunities when compared to
previous cycles.
1
FIGURE 3: REALIZED PRICE OF BITCOIN4
2
3 Cycle Number Average Returns as of 7/4/22

(RP < Price Zone Dates) of Days Price (BTC Price of $20,251)
4
2012
303 $293.52 6799%
(10/4/14 - 10/22/2015)
5
2016
268 $4,502.98 350%
(11/19/18 - 4/1/19)
Covid Crash
7 $5,615.72 261%
(3/12/20 - 3/18/20)
2020
21 $22,580.96 -10%
(6/13/22 - Present)
Market Cycles by the Numbers
According to the aforementioned framework, crypto market cycles have been

taking longer to peak each time. In 2012, the market took 603 days to peak,
increasing approximately 180 days for each subsequent cycle, with 2016 taking 786
days, and 2020 taking 952 days to peak.
From peak-to-trough, the 2012 and 2016 cycles lasted approximately 4 years, or
1,290 and 1,257 days respectively, and took 391 days to fall 73% in 2012, and 364
days to fall 84% in 2016.
In the current 2020 cycle, we are 1,198 days in as of July 12, 2022, which could
represent another approximate four months left in this cycle until the Realized Price
crosses back above the Market Price. Bitcoin is 222 days off the all-time high, which
means we may see another 5-6 months of downward or sideways price movement.
Historically, market bottoms also appear to come one month sooner each time.
In each of the 2012 and 2016 cycles, it took just under three years to regain all-time
high (ATH) – 1,082 and 1,059 days respectively. It took another year to push a new
all-time high again after that.
FIGURE 4: CYCLES5
2012 - 2015 CYCLE (1290 DAYS)
4
2016 - 2019 CYCLE (1257 DAYS)
5
2020 - PRESENT CYCLE (CURRENTLY 1191 DAYS)
In contrast to the previous two cycles, the 2020 cycle appears to have had a longer
run in the ATH range with two prolonged peaks in contrast to the sharp rise and
fall in prior cycles. This may have been due to the growing maturity of the crypto
market that did not exist in previous cycles. Not only has crypto become easier to
invest in for retail investors, the proliferation of crypto exchange traded products,
such as Bitcoin and Ethereum ETFs in Brazil, Canada, and Europe, has brought in
institutional investors that may have previously been unable to invest in the asset
class. Further, decentralized applications (dApps) have been gaining momentum
and finding market fit across decentralized finance (defi), gaming, art, and more.
A Brief History of
Crypto Market Cycles
From a qualitative standpoint, each cycle has marked fundamental advances in

1 both products and adoption, providing a steppingstone for the next cycle. Outlined
below is a brief overview of what has happened in the past beginning with the
2
20126 market cycle.
3
2012 - 2015: Hack Era + Beginnings of Ethereum
4
In 2012, the crypto market consisted almost exclusively of Bitcoin. CoinMarketCap7
5
didn’t exist until almost a full year later in 2013, and it tracked fewer than 30
coins. Outside of trading, Bitcoin’s primary use was online purchases of goods
from websites like the Silk Road. At the time, the Silk Road was a large driver in
onboarding new users to the Bitcoin network, while Mt. Gox, the largest Bitcoin
exchange, was responsible for a large majority of Bitcoin transactions world-wide.
The major theme of this cycle was the proliferation of new crypto exchanges and
wallets. Despite the asset’s infancy, entrepreneurs hoped to capitalize on trading
activity. However, the processes around custody and management of assets like
Bitcoin were relatively non-existent, resulting in repeated hacks of centralized
entities and more than one million Bitcoin being stolen.
Many of the early exploits such as Linode and Bitcoinica seemed to have little
effect on the overall price of Bitcoin as prices continued to climb leading into 2013.
FIGURE 5: 2012 CYCLE - EXTENDED8

6. 2009-2012 are omitted from the analysis due to the infancy of the network and ecosystem during that time
7. Top cryptocurrency prices and charts, listed by market capitalization
8. Source: Grayscale Research
After experiencing setbacks, including the closure of the Silk Road, China
banning banks from handling Bitcoin, and the Mt. Gox hack of 850,000 Bitcoin,
to name a few — the price of Bitcoin dropped ~80% in the year following the
peak on December 16, 2013. The Mt. Gox hack was the last and largest of a
series of exploits, marking the end of this bull phase in the cycle. Decreases in
price came with a wavering confidence in the asset class, as many of the newer
participants left the industry. Those who remained continued to build, developing
1 sophisticated custody procedures for centralized entities and new cryptographic
techniques. Arguably, the most important project created during the downturn of
2 the 2012 cycle is Ethereum.
3
The beginning of Ethereum opened the floodgates to possibilities beyond simply
4 sending and receiving digital assets. Whereas prior innovations featured stepwise
improvements, such as larger block sizes and faster block speeds, Ethereum
5 introduced the power of “smart contracts,”9 which would allow the creation of
advanced applications, such as decentralized exchanges, lending platforms,
entertainment, and non-fungible assets on-chain. This innovation made it possible
to program applications on top of decentralized blockchains, providing functionality
beyond simply transferring coins. While Ethereum officially launched in 2015, it
would take a few years of bear market building for the applications to gain traction.
2016 - 2019: ICO Experimentation Era & the Birth of DeFi
During this period, sentiment recovered and Ethereum brought more

programmability to crypto. Initial Coin Offerings (ICOs) gained immense popularity
both as fundraising tools and scamming mechanisms. Many retail end-users
collectively poured millions of dollars into buying tokens to support visions and
projects that would ultimately never be fulfilled. During peak euphoria, projects
could raise seed rounds of $10+ million with a website and unknown team.
Additionally, the crypto exchange BitMEX launched perpetual swaps (perps) –
an innovative futures product that doesn’t exist in traditional finance markets
– providing traders new ways to trade with leverage. Leveraged trading on
worthless ICO tokens only exacerbated the frenzied price action.
Beginning in October 2017 through 2018, macro drivers, like Quantitative

Tightening and trade disputes, caused emerging market and risk assets (i.e.
crypto) to sell off. ICO unwinding also wiped a significant share of market cap and
value from the market.
The total crypto market cap fell from $700B to $100B – and, while significant, this
sell off did not kill the market. Instead, this was a time when Bitcoin dominance10
fell to all time lows due to capital moving to Altcoins (alts) and ICO tokens.
9. A smart contract is a computer program or a transaction protocol which is intended to automatically execute, control or document
legally relevant events and actions according to the terms of a contract or an agreement.
10. Bitcoin Dominance is the percentage of the Bitcoin market cap relative to the total crypto market cap: BTC market cap / crypto
market cap = Bitcoin dominance.
Despite poor price action, many protocols that now represent most of the core
decentralized apps were launched during this period. For example, the automated
market maker Uniswap, a concept theorized a year earlier by the founder of
Etheruem Vitalik Buterin, was created to allow permissionless asset swapping
more efficiently than anything previously available. Aave, a borrowing and lending
protocol, was also created during this time, marking one of the first apps that
allowed depositors to earn interest through decentralized lending using smart
1 contracts and blockchain. These protocols expanded the utility of Ethereum’s
platform and became the foundation for DeFi summer through new user adoption.
2
3 FIGURE 6: PROTOCOLS11
4
Inception
Protocol Description Stat
Date
5
Decentralized
Aave
1/1/2017 borrowing & $5B+ borrowed
(AAVE)
lending
Decentralized
Livepeer Transcoded over 33M minutes
3/1/2017 video streaming /
(LPT) in Q1 2022
transcoding
$75B+ total revenue, 1000+

Chainlink Price oracle: data &
6/1/2017 DeFi projects secured
(LINK) automation
including Aave & Compound
Decentralized
Compound
8/1/2017 borrowing & $2.5B+ borrowed
(COMP)
lending
Decentralized
MakerDAO crypto-
12/18/2017 $6.5B+ DAI minted
(MKR) collateralized
stablecoin
Flexa
2/1/2018 Digital payments $200M+ TVL
(AMP)
On-chain indexing
The Graph
4/1/2018 (Google for 370B+ data queries
(GRT)
blockchain data)
Uniswap Decentralized
11/2/2018 $1T+ total volume
(UNI) Exchange
The dApps built during this bear cycle would be major catalysts in the next
crypto cycle beginning in 2020 sparking trends like ‘DeFi summer.’
11. Source: Grayscale Research, Messari, Defi Llama
2020 - Present: Leverage, Institutions, & DeFi Battle-testing
The 2020 market cycle is a story of leverage. Between the rising popularity of
perpetual swaps and the Chicago Mercantile Exchange (CME) launching Bitcoin
futures, investors were enticed to begin leveraging up as government spending
in response to the COVID-19 pandemic propped up the economy.
1 Bitcoin hit an initial price peak of $64.8k on April 14, 2021 but unwound due
to high leverage from perpetual swaps and other derivatives. Funding rates –
2 periodic payments between traders to align futures price with spot price – were
positive, indicating that the market was disproportionately long Bitcoin and
3
willing to pay huge fees to maintain their positions. This positive funding rate
4 environment lasted for more than six months, as traders continued to lever up
their positions using crypto as collateral. Collateral prices dropped which caused
5 forced selling and liquidation cascades, sending Bitcoin down to $29k during the
summer of 2021.
FIGURE 7: BITCOIN PERPETUAL FUNDING RATES & OPEN INTEREST VS PRICE12
BTC: Price (USD)

BTC: Futures Perpetual Funding Rate – All Exchanges
BTC: Futures Open Interest Perpetual – All Exchanges (USD)
12. Source: Glassnode
Towards the end of summer 2021, it looked like the market had learned from prior
mistakes of trading with too much leverage. While open interest began to rise,
funding rates were tamer than before. However, during this period the leverage
was largely in the hands of Centralized DeFi (CeFi13) companies and hedge funds.
The lack of transparency in the operations of these businesses led to a second
wave of leverage that unwound after the market peaked again at $68.9k on
November 10, 2021.
1
Centralized DeFi (CeFi) platforms presented themselves as an easy way to access
2 DeFi yields, which could range anywhere from 5% to 20%. CeFi platforms could
offer users around 3-8% APY and use the deposits to beat the advertised yield
3
offered to users to capture the difference. Something which—at the height of the
4 market—was relatively easy to do.
5 Importantly, strategies that arbitrage interest rates are often exposed to various
risks, namely macroeconomic challenges, and duration mismatches. When the
Federal Reserve started raising interest rates due to inflation concerns, prices
began to fall for the second time from all-time highs, and leveraged positions
began to unwind. It began with the collapse of the US Terra stablecoin (UST),
which wiped out over $35 billion in value from the crypto market. The Anchor
protocol – a main component of the UST ecosystem – was one of the primary
sources used to generate yield, as it offered ~20% in UST.
Another source of yield used by CeFi platforms was liquid ETH staking – mainly
through Lido Finance. After rumors of the Ethereum Merge possibly being
delayed, in addition to broader market panic, the stETH14 :ETH peg,15 which
historically traded 1:1, broke down to <.95 causing leveraged stETH positions to
be liquidated, further exacerbating the market sell off16.
In addition to CeFi, many institutional trading firms were heavily affected through
their involvement in Terra, stETH, and leveraged trading. Many crypto prime
brokers issued loans that ultimately could not be repaid or liquidated, expanding
the contagion beyond the firms who lost money for their investors.
Despite tough market conditions, the core DeFi protocols that sparked the growth
of the industry continued to operate properly as intended. Unlike their centralized
counterparts, Aave, Compound, and MakerDAO’s smart contracts remained
resilient to the market, maintaining their loan-to-value and not taking on any bad
debt. Additionally, as of July 5, 2022, Uniswap has processed over $42 billion in
trading volume over the last 30 days and metaverse coins, such as AXS, MANA,
and GALA, have outperformed Bitcoin and Ethereum in the same period.
13. CeFi offers some of the yield benefits of DeFi with some of the ease of use and security of traditional financial-services products.
With CeFi, individuals can earn interest on savings, borrow money, spend with a crypto debit card, and more.
14. stETH is the tokenized form of staked Ether native to Lido
15. A “peg” is a specified price for the rate of exchange between two assets
16. As discussed in our June 2022 newsletter, available upon request at info@grayscale.com
What’s Happening On-chain?
1 The price of digital assets represents only a portion of the broader ecosystem
developing in the crypto industry. While the price of Bitcoin has fluctuated
2 alongside traditional financial assets during market uncertainty, the underlying
network continues to operate as designed, and is on track to process nearly $18
3
trillion in value this year, up from $13 trillion in 2021 as seen in the chart below.
4 Mexico, the third largest recipient of remittances, is one of many countries turning
to this technology. Bitso, a Mexico-based crypto exchange, saw a 4x increase in
5 cross-border remittances between Q1 2021 and Q1 2022.
FIGURE 8: BITCOIN NETWORK VALUE TRANSFERRED (USD)17

Bitcoin Network Value Transferred (USD)
$20T
$17.78T
$18T
$16T
$14T $13.11T
$12T
$10T
$8T
$6T
$4T $2.76T
$2.12T $1.89T $2.34T
$2T $.46T
$.01T $.08T $.12T $.15T
$0T
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Smart contract networks, like Ethereum and Solana, could also be used for
remittances for users who would prefer to transfer assets other than Bitcoin, such
as stablecoins18. Regardless of the blockchain used, assuming robust network
security, users can securely transfer value to anybody in the world with an internet
connection, sometimes for less than the cost of a traditional remittance payment.
The 30-Day Exchange Net Position Change, which measures the amount of Bitcoin
on centralized exchanges, experienced the largest outflow on record in June 2022,

indicating that holders are moving their coins off exchanges and centralized lending
platforms. This signals that investors may be wary of keeping funds with centralized
lenders who may be experiencing liquidity issues due to riskier strategies
employed with user funds. Instead, it appears that users are opting to passively
hold their digital assets.
17. Source: Coin Metrics

18. Stablecoins are cryptocurrencies the value of which is pegged, or tied, to that of another currency, commodity or financial instrument.
FIGURE 9: BITCOIN: EXCHANGE NET POSITION CHANGE (BTC) – ALL EXCHANGES19
5
Exchange Net Position Change – All exchanges (BTC) Price (USD)
Exchange Net Position Change – All exchanges (BTC)
Many of these outflows could be due to investors taking this opportunity to

increase their position sizes at a discount. The number of wallet addresses
holding .001-.01 BTC, .01-.1 BTC, and .1-1 BTC has increased sharply, reaching
new all-time highs. This marks an interesting change in market sentiment as,
historically, smaller investors have decreased their positions sizes in times of
uncertainty – notably in 2018 after the price of Bitcoin fell from ~$20k.
FIGURE 10: BITCOIN: SMALL HOLDER BALANCES20

BTC: Price (USD) BTC: Addresses with Balance ≥ 0.1

BTC: Addresses with Balance ≥ 0.01 BTC: Addresses with Balance ≥ 1

DeFi has also had an interesting year. In the book The Sovereign Individual by
James Dale Davidson published in 1997, Davidson predicts:
“A proliferation of jurisdictions will mean proliferating

experimentation in new ways of enforcing contracts and
otherwise securing the safety of persons and property.”
1 The CeFi companies and hedge funds facing insolvency used a combination of
DeFi protocols, like Aave, and centralized lenders to borrow capital. Interestingly,
2 the DeFi positions were paid back before centralized lenders or equity holders.
Decentralized lending protocols operate autonomously, as dictated by the code
3
written in the smart contracts. For decentralized lending protocols, there is no
4 way to negotiate the terms of a position – if it falls below the loan-to-value ratio ,
it will be liquidated.
5
The transparent nature of on-chain activity also gave market participants insight
into these institutions’ positions – where traditional markets could be more
opaque – giving the market time to prepare and adjust for potential liquidations.
Despite capital outflows due to users deleveraging their positions, the total
borrows on lending platforms, like Aave and MakerDAO, remain higher than at
the start of 2022.
FIGURE 11: TOTAL BORROWS ON DECENTRALIZED LENDING PLATFORMS (ETH)21
Total Borrows on Decentralized

MakerDAO Aave Lending Platforms (ETH) Other
Compound
MakerDAO Aave Compound Other
6.5M
5.5M
5.3M
4.5M
3.5M
2.5M 2.7M
1.4M
1.5M
0.7M
0.5M
22
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22
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21. Source: Grayscale Research, Token Terminal, Defi Llama. Note: ‘Other’ includes Benqi, Maple-Finance, Liquity, Truefi, Solend, Euler,
Alpha Finance, Goldfinch, Centrifuge, Reflexer, and dForce
Uniswap, the largest decentralized exchange, has also seen impressive growth
and performance during this market cycle. Founded in November 2018, during a
bear market, it has grown into a core pillar of the DeFi ecosystem. Research by the
Uniswap foundation and Paradigm showed that Uniswap has greater market depth
for ETH/USD and BTC/USD pairs. This is especially impressive as Uniswap has and
delivers all the assets being traded, where a centralized exchange does not need
to transfer or deliver assets until the user withdraws into self-custody. The liquidity
1 on stablecoin pairs was also found to be higher than centralized exchanges, with
Uniswap having nearly 5.5x more liquidity than Binance – the world’s largest crypto
2 exchange – on the USDC/USDT pairs.
4 FIGURE 12: MARKET DEPTH COMPARISON FOR ETH/USD STABLES AND ETH/BTC22
Monthly decentralized exchange (DEX) volume has also remained stable amidst
volatile market conditions. A year ago in June 2021, DeFi was nearly non-existent,
with DEXs handling a few billion dollars in volume. As of June 2022, DEXs on
Ethereum, like Uniswap, did approximately $75 billion in trading volume. July 2022
DEX volume also remained on par with February 2022 volume when the price of
Ethereum was ~2.5x higher at approximately ~$2800 vs. ~$1100 respectively.
22. Source : Uniswap Labs, Paradigm

Note: The figure shows the daily average +/- 2% spot market depth in $millions for the sample period from June 2021 to March 2022 for
ETH/USD and February 2022 to March 2022 for ETH/BTC. The market depth for ETH/USD is aggregated across ETH/USD (fiat), ETH/
USDC, ETH/USDT, and ETH/DAI. Data on centralized exchanges is provided by Kaiko. The comparison does not include some exchang-
es, including FTX and Bybit, due to a lack of data.
FIGURE 13: ETHEREUM DECENTRALIZED EXCHANGE VOLUME (USD)23
Uniswap Curve
Ethereum Decentralized Sushiswap
Exchange Other
Volume (USD)
$160B Uniswap Curve Sushiswap Other
$140B
$120B
1
$100B
2
3 $80B
4 $60B
5 $40B
$20B
$0B
0
20
19
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9
21
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1
22
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The creation of Ethereum – a decentralized network like Bitcoin but with smart
contract capabilities – opened up infinite possibilities for what could be created.
The metaverse is one of the fastest growing categories in crypto, with more than
230 assets valued at over $11 billion according to CoinMarketCap. Axie Infinity, a
popular blockchain-based game built on Ethereum, had over 778k active addresses
playing the game in the last 30 days. Existing companies have also begun to take
interest in the intersection between crypto and gaming & entertainment. Gala
games, a blockchain-based game developer, recently entered into a partnership
with Epic Games, the studio behind Fortnite. The partnership24 between Gala and
Epic Games will provide more than 194 million users with easy access and exposure
to what could be their first ever blockchain-based video game – a huge step
forward in the development of the industry.
Another subsector of the crypto markets is decentralized infrastructure. Filecoin

– a decentralized file storage network – launched the hyperdrive upgrade in
June 2021, resulting in 10-25x increased transaction throughput. The chart below
shows the protocol revenue flatlining following the network upgrade despite an
exponential increase in network usage (Daily Active Deals). While protocol revenue
is important, development is not always dependent on it. In the case of Filecoin,
this upgrade scaled the network to continue providing file storage for 0.001% of the
cost of Amazon AWS S3 file storage.25
23. Source: Grayscale Research, Dune Analytics

24. https://cryptoslate.com/gala-games-strikes-partnership-with-fortnite-creator-epic-games-amid-valve-ban-on-blockchain-games/ 21.
25. https://file.app/
FIGURE 14: FILECOIN ACTIVE DEALS26
5
26. Source: Messari
What’s next?
1 Seasoned crypto investors are no strangers to wild price swings and 80%
drawdowns – it is to be expected in a nascent asset class. We believe
2
the technology underpinning the entire industry has the potential to
3 revolutionize all aspects of digital life, from fintech to entertainment. In the
40 years since the internet became publicly available, there has never been
4 a way to truly own digital assets without personally operating the physical
hardware it lives on, until Bitcoin was created.
5
It can be easy to lose sight of how far we’ve come as an industry, but, in our
opinion, bad news can be viewed as good news for investors with a long
enough time horizon. What started as a hobby project by an anonymous
cryptographer that has time and again, been pronounced dead, is now
providing value in countless industries across the globe. Blockchain
technology is helping provide financial inclusion and equity in developing
countries, sparking innovation in finance and cryptography, and driving
progress to a new phase of the internet – one where ownership of digital
assets and items is not dependent on a centralized authority.
At the time of this writing, every market cycle that the crypto industry has
gone through has left the ecosystem stronger than the previous. In crypto,
we have seen that failure has not been fatal to the industry, but, instead,
a necessary step in progressing to the future. This market cycle has
already provided us with battled-tested DeFi and infrastructure protocols,
innovations in scaling solutions, a growing metaverse industry, and more.
Despite price declines, liquidations, and volatility, the crypto industry
continues to build and innovate, pushing the boundaries of what is possible.
About Grayscale Investments, LLC
Founded in 2013, Grayscale Investments is the world’s largest digital currency

asset manager. Through its family of investment products, Grayscale provides
1
access and exposure to the digital currency asset class in the form of a security
2 without the challenges of buying, storing, and safekeeping digital currencies
directly. With a proven track record and unrivaled experience, Grayscale’s
3 products operate within existing regulatory frameworks, creating secure and
4 compliant exposure for investors.
5 Grayscale is headquartered in Stamford, Connecticut. For more information on

Grayscale, please visit www.grayscale.com or follow us on Twitter @Grayscale.
6
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Grayscale Insights | July 2022

Crypto Market Cycles 5

A Brief History of Crypto Market Cycles 8

What’s Happening On-chain? 13

FIGURE 1: EXPECTATION VS REALITY2

Identifying Crypto Cycles

FIGURE 2: BITCOIN MARKET CYCLES: PRICE VS. REALIZED PRICE3

Re alized Price Price

Realized Price = Realized Market Cap / Current Supply

3. Source: Glassnode, Grayscale Research

3 Cycle Number Average Returns as of 7/4/22

Market Cycles by the Numbers

According to the aforementioned framework, crypto market cycles have been

4. Source: Glassnode, Grayscale Research

2012 - 2015 CYCLE (1290 DAYS)

2020 - PRESENT CYCLE (CURRENTLY 1191 DAYS)

5. Source: Glassnode, Grayscale Research

From a qualitative standpoint, each cycle has marked fundamental advances in

FIGURE 5: 2012 CYCLE - EXTENDED8

2016 - 2019: ICO Experimentation Era & the Birth of DeFi

During this period, sentiment recovered and Ethereum brought more

Beginning in October 2017 through 2018, macro drivers, like Quantitative

$75B+ total revenue, 1000+

11. Source: Grayscale Research, Messari, Defi Llama

FIGURE 7: BITCOIN PERPETUAL FUNDING RATES & OPEN INTEREST VS PRICE12

BTC: Price (USD)

12. Source: Glassnode

FIGURE 8: BITCOIN NETWORK VALUE TRANSFERRED (USD)17

on centralized exchanges, experienced the largest outflow on record in June 2022,

17. Source: Coin Metrics

Many of these outflows could be due to investors taking this opportunity to

FIGURE 10: BITCOIN: SMALL HOLDER BALANCES20

BTC: Price (USD) BTC: Addresses with Balance ≥ 0.1

19. Source: Glassnode

“A proliferation of jurisdictions will mean proliferating

FIGURE 11: TOTAL BORROWS ON DECENTRALIZED LENDING PLATFORMS (ETH)21

Total Borrows on Decentralized

22. Source : Uniswap Labs, Paradigm

Another subsector of the crypto markets is decentralized infrastructure. Filecoin

23. Source: Grayscale Research, Dune Analytics

26. Source: Messari

Founded in 2013, Grayscale Investments is the world’s largest digital currency

5 Grayscale is headquartered in Stamford, Connecticut. For more information on

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