The digital asset landscape has entered a prolonged phase of subdued performance, with Bitcoin (BTC) and Ethereum (ETH) experiencing significantly reduced returns over the past 12 months. This extended bear market has not only dampened price momentum but also impacted long-term compounded growth, on-chain activity, and investor sentiment across the ecosystem.
The Longest Downtrend in History
Bitcoin has now traded lower for eight consecutive weeks — the longest such streak in its history. Over the last month, BTC recorded a monthly return of -30%, equating to nearly 1% in daily value loss. While not as severe as the drawdowns seen between May and July 2022, this period of negative returns remains rare and typically coincides with major market transitions, such as the beginning or end of bear markets.
Similarly, Ethereum posted a slightly worse monthly return at -34.9%, reinforcing the strong correlation between the two leading digital assets despite their differing technological foundations. This synchronicity extends beyond short-term movements and is evident in their long-term performance trends.
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Shrinking Long-Term Returns: A 4-Year Perspective
Historically, Bitcoin has followed a roughly four-year market cycle, often aligned with its halving events. However, the 4-year rolling Compound Annual Growth Rate (CAGR) for BTC has shown a consistent decline — from over 200% in 2015 to under 50% today. Since the major market correction in May 2021, this CAGR has sharply contracted, suggesting that the current bearish trend may have begun earlier than commonly perceived.
Over the past year alone, BTC’s 4-year CAGR has dropped from around 100% to just 36%, while ETH’s has fallen to 28%. These figures highlight the severity of the current downturn and signal a maturing market where outsized returns are becoming increasingly difficult to achieve.
Ethereum’s CAGR trajectory mirrors Bitcoin’s during bear markets, indicating growing alignment in risk perception. While ETH tends to outperform BTC during bullish phases, this outperformance has weakened over time. Conversely, in downturns, ETH often underperforms — a pattern clearly visible since mid-2021.
Market Rotation and Risk Appetite
A key indicator of shifting market sentiment is the Bitcoin dominance ratio — specifically, the BTC-to-ETH market capitalization ratio. This metric helps identify macro-level risk rotation:
- Declining BTC dominance (green arrows) usually signals mid-to-late bull markets, as investors move toward higher-risk assets.
- Rising BTC dominance (red arrows) typically marks early bear phases, where risk aversion grows and capital flows into Bitcoin as a relative safe haven.
Following the collapse of LUNA and UST in May 2022, we observed a sharp increase in BTC dominance, reflecting renewed risk-off behavior. This shift suggests that investors are consolidating holdings in Bitcoin amid broader market uncertainty — a classic hallmark of bear market dynamics.
Interestingly, compared to the 2018 downturn, Ethereum has maintained stronger market positioning, indicating improved resilience and maturity within the ecosystem.
Derivatives Market Signals Further Downside
Derivatives data reveals persistent bearish sentiment across both BTC and ETH. The 3-month rolling basis rate — a measure of cash-and-carry returns in futures markets — stands at approximately 3.1% for both assets. While historically low, this yield still exceeds the U.S. 10-year Treasury rate of 2.78%, potentially attracting institutional interest seeking yield alternatives.
However, options markets reflect significant near-term caution. Implied volatility surged during recent sell-offs, with short-term at-the-money options jumping from 50% to over 110%. Six-month options reached 75%, breaking out of prolonged low-volatility conditions.
The put/call ratio for Bitcoin options has risen from 50% to 70% over two weeks, indicating growing demand for downside protection. Open interest shows heavy concentration in put options at strike prices of $25K, $20K, and $15K — suggesting strong hedging or bearish speculation through mid-2025.
In contrast, longer-dated options reveal more constructive sentiment. Year-end open interest favors call options with strikes between $70K and $100K. Dominant put strikes are also positioned higher ($25K–$30K), implying that while near-term outlooks remain cautious, longer-term expectations are still bullish.
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On-Chain Activity at Multi-Year Lows
On-chain metrics paint a picture of a "ghost town" across major blockchains. High demand for block space typically drives up transaction fees — a sign of network congestion and active usage. Yet both Bitcoin and Ethereum show minimal fee pressure.
Bitcoin’s daily transaction fees have stagnated around 10–12 BTC since May 2021, briefly spiking during last week’s volatility but failing to sustain higher levels. Similarly, Ethereum’s average gas price has dropped to just 26.2 Gwei — comparable to lows seen in mid-2021 and post-March 2020.
This fee suppression reflects weak demand for block space. A direct consequence is the declining effectiveness of EIP-1559’s fee-burning mechanism. Daily ETH burned peaked at 38,940 during high-profile NFT mints like Otherside but has now hit historic lows. This week, only 2,370 ETH were burned — a 50% drop from early May — representing just 18.4% of new issuance entering circulation.
Lower burn rates mean more net supply inflation for ETH, which can exert downward pressure on price during periods of weak demand.
DeFi Activity Mirrors Price Trends
Activity in decentralized finance (DeFi) protocols closely tracks broader market health. Metrics for major DeFi tokens — including AAVE, COMP, UNI, and YFI — show declining active addresses and transfer volumes in USD terms. Last week saw a minor uptick in engagement, but whether this signals a reversal or fleeting rebound remains uncertain.
The strong correlation between on-chain usage and price performance underscores that user adoption remains tightly linked to market cycles — and we are clearly in a retrenchment phase.
Frequently Asked Questions
Q: What causes declining returns in crypto markets?
A: As markets mature, larger capital requirements, increased institutional participation, better risk modeling, and reduced information asymmetry all contribute to lower volatility and compressed returns over time.
Q: Is low on-chain activity always bearish?
A: Not necessarily. Periods of low activity often precede accumulation phases. However, sustained lows during price declines typically indicate weak demand and prolonged bearish sentiment.
Q: Why is Ethereum’s burn rate important?
A: The EIP-1559 burn reduces ETH supply inflation. A declining burn rate means more net new supply enters circulation, which can weigh on price if demand doesn’t keep pace.
Q: Does rising Bitcoin dominance mean Ethereum is failing?
A: No. It reflects risk rotation rather than failure. In bear markets, capital often consolidates in BTC before rotating back into altcoins during recovery phases.
Q: Can high put/call ratios predict further price drops?
A: They indicate fear and hedging behavior, not guaranteed outcomes. However, extreme put skew often precedes volatility expansions or capitulation events.
Q: Are we near the end of the bear market?
A: Historically, bear markets worsen before recovery. While current conditions are harsh, they often lay the foundation for the next bull cycle — aligning with the adage: “Bears plant the seeds for the next bull run.”
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Final Thoughts
This bear market has been defined by shrinking returns, declining on-chain activity, and pervasive risk aversion. Both Bitcoin and Ethereum have seen their long-term growth rates compress significantly. Derivatives pricing reflects near-term pessimism, while DeFi usage remains depressed.
Yet history shows that these conditions are cyclical. Periods of stagnation often precede renewal. As investors rotate into safer assets and accumulate during downturns, the foundation for the next upswing quietly forms.
While recovery may not be immediate, the current environment offers valuable insights for strategic positioning — especially for those who understand that every bear market eventually gives way to a new bull cycle.
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