How long will this bear market last? • Benzinga Crypto
Everyone, except perhaps those who live near the equator, has experienced the change of seasons. We all have our favorites; some people love summer while others live for winter.
Well, being involved in the cryptocurrency space is no different. The entire crypto market goes through seasons as distinct as the seasons of the earth. Anyone who has been investing in crypto for more than four years has experienced them all, spring, summer, fall and winter. Seasons are visible when viewing the logarithmic Bitcoin price chart.
The crypto spring is a period of revival for dormant crypto prices. This season leads into the crypto summer, where prices soar to new highs like lush summer foliage. The fall of crypto is a time of uncertainty. Is the crypto summer really over? Finally, the constant fall in prices answers this question.
Next comes the cold crypto winter. Prices have fallen more than expected. Those who stuck around for the quick crypto summer gains are long gone. Social and mainstream media are full of stories about the death of Bitcoin and the entire crypto market.
“Bitcoin is dead” and “crypto goes to zero” are the headlines. Social media posts claiming that crypto is nothing more than a Ponzi scheme are common. At first glance, the crypto market seems as barren as frozen tundra. Even though below the surface, innovation continues. Sometimes the crypto winter never seems to end. This period represents the brutal reality of investing in crypto.
Crypto winter weeds out true crypto believers from the get-rich-quick crowd. Surviving the four seasons makes you a better investor. It builds character and teaches you patience and preservation of capital. As the crypto winter drags on, the question “How much longer is this going to last?” is common.
This crypto market cycle is no different. However, last year’s crypto summer was interrupted by a cold front that lasted from May to early August. This price action resulted in a double top for the price of Bitcoin. The crypto crash has come and gone, and crypto winter is here. So naturally, the question again is, how long is this going to last?
Why is the crypto market falling?
Before answering the question above, let’s take a look at why the cryptocurrency market has fallen since the peak on November 10, 2021. Most people who ask why the crypto market is down are new to the cryptocurrency market. cryptography. They are unfamiliar with the natural cycles of the crypto market.
Even though there are natural market cycles, that doesn’t mean outside forces can’t affect those cycles. The current macroeconomic environment is challenging to say the least. US inflation is at its highest level in 40 years and the Fed is raising interest rates in an attempt to combat it. Inflation is not just an American problem; it is a problem in countries all over the world.
Many economic indicators point to a possible US recession and, on top of all that, a war is raging in Eastern Europe. This macroeconomic environment has created an atmosphere of risk aversion that is wreaking havoc on markets around the world. For some time now, Bitcoin has been correlated with the US stock market, particularly the S&P 500. This connection is evident when comparing BTC and the SPDR S&P 500 ETF Trust (SPY), which tracks the price of the S&P 500. The stock market pullback likely also played a role in Bitcoin’s price decline.
Is it possible that all these negative forces could also have cut short the 2021 bull market? Sure, it’s possible, but for the most part, this bear market seems to be just part of Bitcoin’s normal market cycle.
One could also argue that Bitcoin has held up pretty well given all the negative outside forces. As of July 14, 2022, the closing price of Bitcoin was $20,589 (Binance). This is about 70% less than the November peak; all things considered, it could be much worse.
Will the crypto market continue to crash?
That’s the million dollar question, and the truth is, no one knows the answer. Bitcoin held within a range of $30,000 either side for a month before support at that level failed. Now, Bitcoin has found support around the $20,000 level for about the last month, down about 70% from the peak.
Bitcoin daily chart
So now the question is, will this level of support fail as well? There is no way to know the answer to this question either. But, despite other parts of the crypto market already devastated, if that level fails and Bitcoin drops significantly, there will be more market-wide carnage.
Can macroeconomics affect the crypto market?
There is no doubt that macroeconomic factors affect most traditional markets. These factors include inflation, economic growth rate, gross domestic product (GDP), monetary policy and unemployment levels.
Sometimes the crypto market can seem isolated from non-crypto events, but that’s not necessarily true. The crypto market is not immune to the positive or negative effects of these macro factors. It seems more and more that the price of Bitcoin is correlated with the SPDR S&P 500 ETF Trust (SPY). So when the stock market booms or takes a hit, that change can be transferred to Bitcoin and the rest of the crypto market.
The correlation is not 100% and can come and go, but it is often quite strong. This correlation is evident when looking at the chart below, so it is crucial not only to pay attention to the crypto market, but also to macro factors.
Bitcoin 5 Minute Chart – SPY/BTC Correlation
When and where will Bitcoin be bottom?
If “Will the crypto market continue to crash” is the million dollar question, then “Where is Bitcoin going down” is the billion dollar question. This is all the more important as Bitcoin leads the entire crypto market; the rest of the market follows where Bitcoin is going.
Bitcoin has been holding around the $20,000 level for a month after a rapid drop from the $30,000 level. So now the question is, is $20,000 a low and is a 70% drop from the November peak painful enough?
While past price patterns don’t need repeating, perhaps looking at Bitcoin’s price history can give some clues as to what might be possible. The chart below shows that the previous two Bitcoin bear markets have bottomed around 85% from their highs.
If Bitcoin loses a similar percentage in this bear market, it will drop the price to just above $10,000. Bitcoin falling another 50% to $10,000 would inflict enormous pain on the crypto market. But maybe that’s what it takes to finally hit rock bottom.
Could the June 18 wick drop to $17,600 be the bottom and Bitcoin continues to slowly rise from here? Or is Bitcoin destined to match the percentage declines of past bear markets? Or maybe a background somewhere in between?
Bitcoin Weekly Chart
There is probably a good chance that Bitcoin will bottom before the end of 2022. Bitcoin’s bottom does not mean recovery will follow soon after. In past bear markets, the consolidation period has lasted from several months to almost a year.
Looking at the chart above, you can see that most of the bull markets happened after the Bitcoin halvings. With Bitcoin anything is possible, but there is a higher probability that the pattern will continue. If this is true, the next bull market will only start after the next halving in April 2024.
Can the crypto market still recover in 2022?
Of course, anything is possible, but most likely the only recoveries in 2022 will be short-lived bear market bounces. Bear market bounces are not uncommon and can sometimes be quite large in size, 40% to 50% or more.
Again, it must be emphasized that anything is possible. Perhaps the changing demographics of investors and the expansion of the crypto sector will be enough to alter the bear market. Perhaps this bear market will be shorter and shallower than previous bear markets. It’s always good to keep an open mind while being mentally prepared for the worst.
The best exchanges to buy crypto
There are hundreds of crypto exchanges around the world, so it should be easy to find one you like. If you live in the United States, your choices will be slightly limited. Gemini and FTX are excellent exchanges with easy to use trading platforms. Of the 2, new investors may find the Gemini platform a bit easier to use.
Investors who want to be able to trade cryptos and stocks from the same platform should opt for Webull, Robin Hood (NASDAQ: HOOD), SoFi Technologies Inc. (NASDAQ: SOFI), Interactive Brokers or Public.com. Many crypto investors use multiple platforms to buy and sell cryptocurrencies.
Whichever broker or exchange you choose, it is best not to store too much crypto on the exchange. Get yourself a good crypto wallet, preferably a cold storage hardware wallet. Hardware wallets give you the highest level of security to protect your crypto assets.
Is it a good time to start investing in crypto again?
It is difficult to give a comprehensive answer to this question. All investors have different goals, time horizons and risk tolerances. There is no way to tell if Bitcoin has bottomed out or is even close to a bottom. Knowing this, anyone starting to invest in crypto must now accept the possibility that the price of Bitcoin will drop significantly.
If you are willing to accept this risk, the best strategy is to average the dollar cost in positions over a longer time frame. Averaging dollars will help minimize risk and give you a better overall average price. Above all, educate yourself and only risk the amount you are willing to lose.