Many analysts in the crypto media state that we are in a bear market. I also agree with this view, but I think that explaining the market situation by drawing similarities with the years 2014 and 2018-2019 can be misleading.
Are we really in a bear market? In traditional finance, a bear market is considered to have started if prices have fallen by 20% from their peak. In the crypto market, where price volatility is high, there is no such generally accepted rule. However, we are in a position to claim that we are in a bear market based on various criteria. As of today, there is a 56% decline in the total value of the crypto market compared to November 2021. This rate is lower for Bitcoin and stable coins, which make up about half of the total value of the crypto market. Prices for many altcoins have fallen to one-third or one-fourth. Bitcoin dominance has risen by 5 points since November, and prices have been below the 200-day simple average since the start of the year.
Why do I think the current bear market can be different from previous ones? Here are the reasons:
Many Chains Have Working Products With Real Utility
In 2018, the application areas of blockchains were quite limited. Many projects did not yet have a working product. It was claimed that cryptocurrencies would fulfill many functions beyond the function of storing and transferring value, but these were not yet experienced. Decentralized finance applications and NFTs were known by a handful of people even in the crypto world. Therefore, the share of speculation in crypto investment was much higher compared to today. Nowadays, investors can meet many needs such as earning returns on deposits and taking loans on DEFI applications. On the other hand, NFT-based games and digital art has created a significant income potential.
Limited Price Increase in the Bull Market
In 2013, I had not yet met the crypto world. However, when I go back and examine the prices, I see that the value of Bitcoin increased 80 times that year. During the bull market after such an astronomical increase, the price of Bitcoin dropped by 80%. That decrease took place in about 1 year.
In 2017, the price of Bitcoin increased by about 20 times. In the bull market that followed, prices declined by 80%, similar to 2014. The decrease in prices took place within a year, similar to 2014.
During the bull rally in 2020-2021, the value of Bitcoin increased 9 times. Therefore, the bubble in prices was smaller compared to 2013 and 2017. As a matter of fact, after the first peak, a second peak occurred in prices. Although one year passed since the first peak, Bitcoin had regressed 60% at most.
The bigger the bubble in prices, the harder the bear market is experienced.
More Experienced Investors
Few people experienced the price movements of Bitcoin in 2013 and 2014. Many people who are still crypto investors entered the market in 2017 and beyond. Therefore, history repeated itself and they experienced an excessive rise in 2017 and a significant price drop in 2018.
However, the bull rally in 2021 was shorter than the previous ones due to the sales of experienced investors. Experienced investors also know that the bear market is a good time to buy coins at a low price.
Different Macroeconomic Situation
Macroeconomic factors were not effective in the bear markets in 2014 and 2018-2019. In other words, prices had declined in line with the dynamics of the crypto market itself. However, the sales realized in 2022 were accompanied by expectations and realizations regarding the monetary tightening steps of the FED. Similar to the crypto market, sales have occurred in the stock markets. Currently, high inflation forces central banks to increase interest rates. Interest rate hikes lead to escape from risky assets. On the other hand, recession concerns are also one of the reasons for the decline in asset prices.
The correlation period between stock markets and cryptocurrencies lasted more than three months. In recent days, we see that this correlation has been decreasing. However, macroeconomic developments will continue to have more or less impact on the crypto market.
Institutional Investors Impact on Prices
I have been following what is happening in the global markets for many years. I have witnessed dozens of times that prices move in the opposite direction of expectations in the market. Because the big players like to send the ball and the goalkeeper to separate corners, like penalty kickers. In 2020 and 2021, institutional investors began to be influential in price formation in the crypto market. I think it will become more difficult to predict prices in the crypto market with the involvement of institutional investors.
On the other hand, I think that the Bitcoin halving event will not be as effective as before. Because the inflation of Bitcoin is still at the level of 1.76%. A halving of this value is expected to have less impact than a halving of higher emissions in previous years. Therefore, I am skeptical of the hypothesis that the bear market could last until the next halving date, the early 2024s. Smart money can prepare many surprises for us until that date.
Conclusion
Like many people who follow the crypto market, I think we are in a bear market. However, I suggest that the current bear market will not be like the previous ones. Currently, the total value of the crypto market is about 25% below the level it should be, according to the logarithmic price model created using historical data. It is estimated that Bitcoin may decline to the level of $ 22 thousand, which is the 200-week average in the coming weeks. Because in the past, the bottom levels of the bear market were formed at this point.
Those who express their opinions on the crypto market mostly believe that the sales will continue. Based on the bear markets in the past, it is thought that the stagnation in the crypto market will last for nearly 1 year.
For the reasons I explained above, I think this bear market will be different from the previous ones. On the other hand, I do not suggest that things will get better soon. The height and depth of waves in the crypto market have been decreasing over the years, and prices are not far from where they should be. Therefore, I think bullish and bearish scenarios are both valid.
Thank you for reading.