The current crypto bear market has created panic, fear and uncertainty in investors. The dire situation began when the global market cap of crypto fell below $2 trillion in January 2022. Since then, the Bitcoin price has dropped over 70 percent from its all-time high of $69,044.77, which it reached on November 10, 2021. Similarly, the values of other major cryptocurrencies such as Ethereum, Solana, Avalanche, and Dogecoin have also dropped by nearly 90 percent. So, does history tell us anything about when the bear market will end?
2022 bear market: What were the factors?
There are several factors that are causing the current bear market. First, the formation of the bear market began in 2021. During this period, many regulatory authorities threatened to introduce strict laws governing cryptocurrencies. This created fear and uncertainty in the market. The global rise in inflation and rising interest rates also caused fear and uncertainty in the market. This resulted in lower-than-expected crypto investment. The chart below shows the inflation trend from 2016 to 2022.
cryptocoin.com As we reported earlier, the Fed increased the fed funds rate twice during the year to reduce the inflation rate. This has reduced the disposable income of US residents. Thus, it reduced its efforts to invest in risky assets such as cryptocurrencies. Crypto analysts believe leverage is another primary reason for the current bear market. Leverage requires lending a small amount of money as collateral to borrow a large amount for investment. In this case, investors borrow from exchanges to finance their investments in the market.
The downside to leverage is that when an asset’s price starts to drop, trading positions are liquidated and as a result, cryptocurrency prices gradually drop. This lowers investor confidence and tends to inject fear and uncertainty into the market. Because while there are tools to provide protection for short and long positions in traditional markets, this is not the case for the crypto market.
Signs that the bear market is coming to an end: 5-6 months may be left
Analysts study market cycles to predict when a bear market will end. In general, market cycles include four phases: accumulation, price increase, distribution, and discount. The market cycle for Bitcoin occurs in four years or 1,275 days. The last stage is usually related to the bear market. According to Grayscale, the crypto bear market begins when the realized price of Bitcoin exceeds the market price. The realized price of BTC surpassed the market price on June 13, 2022. The chart below shows Bitcoin prices when the market price is higher than realized.
It is interesting to note that by July 12 the cycle had completed 1,198 days. As the entire cycle took 1,725 days, there were four months before the realized price rose above the BTC market price by that date. However, at the end of four months, Bitcoin will need another 222 days to reach its previous all-time high. This means that starting in July, it will take a total of five to six months for the bear market to end. The chart outlines the expected trajectory of the current crypto cycle.
How long will the Bitcoin bear market last, according to traders?
Bitcoin maximalists tend to look to the Bitcoin halving as an indicator to predict the next bull run. Looking at the data, BTC has peaked within 18 months of every Bitcoin halving. In the past, Bitcoin halving preceded crypto bull runs, as shown in the chart above. Therefore, BTC maximalists who claim that the halving program directly affects the bullish or bearish nature of Bitcoin may be right.
The 2022 bear market is unique for several reasons. First, key macroeconomic variables such as high interest rates and rising inflation increased their impact. Also, the Terra-LUNA collapse and high leverage in the entire crypto ecosystem contributed to the start of the bear run. Apart from that, this is the first bear market where there is a correlation between the stock market and Bitcoin. Also, BTC’s value dropped below $17,600 for the first time ever to fall below the previous cycle high.
What effect does the change in the Fed’s rate hikes have for Bitcoin?
According to macro experts, there may be a easing in the Fed’s rate hikes in early 2023. Jurrien Timmer, Fidelity’s global director of macros, predicted that the easing will continue for about two years starting in early 2023. To some, this could be a potential indicator of how BTC is close to regaining its independence from external factors.
Rayne Steinberg, CEO of crypto investment firm Arca, also said that the market is nearing the end of its collapse. The contrasting situations between the 2021 crypto bull run and the 2022 bear market have taken crypto investors by surprise. Analysts think that the current bear market will end between November 2022 and December 2022. They believe that a possible bull run will begin between the end of 2024 and the beginning of 2025.
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