How Crypto Bear Market Turns into Bull markets？
[TL; DR]
The causes of the current crypto bear market include Russia’s invasion of Ukraine, adjustment of interest rates in the United States as well as the collapse of TerraUSD and LUNA.
On average, a crypto bear market lasts for 359 days.
The 2024 Bitcoin halving event, greater adoption of cryptocurrencies and other crypto developments are likely to cause the recovery of the current crypto bear market.
Introduction
The ongoing crypto bear market has induced fear, pain and uncertainty among the investors at a scale never seen before. It all started in January 2022 when the total crypto market capitalization dropped from $2 trillion. This resulted in sharp decreases in the prices of Bitcoin and altcoin. For example, the price of BTC has fallen by over 70% from its all-time-high of $69,044.77, reached in November 2021.
Altcoins were affected in a greater way than BTC. For example, ETH price fell by around 90%. The situation is even worse for other cryptocurrencies whose values have dropped by bigger margins. Already, several cryptocurrencies such as LUNA and FTT imploded during the year.
We are in a crypto bear MarketWe are in a crypto bear Market
By now, many analysts and investors concur that we are in a deep crypto market, considering how hard the prices of most cryptocurrencies have fallen. However, there is something unique about the current bear market. Both the stock market and crypto market are in this bear run.
Crypto bear market- Yellowcard
The reason for both markets to be in a bear market is their high correlation that we noticed after the COVID-19 pandemic. For example, Bitcoin has been correlated to the stock market for the greater part of 2022. This is because many institutional investors that invest in the stock market have also put their funds in the crypto sector.
As a result of this correlation between the crypto market and stock market, they are both affected by changes in the macroeconomic variables such as interest rates and inflation.
With this in mind, it is clear to note that the prices of most stocks have crumpled since the beginning of 2022. For example, the value of the S & P 500 index decreased by over 21% during the year.
The prices of Amazon, Google and Elon Musk’s Tesla dropped by over 39%, 27% and 45% respectively. The main causes of this trend include inflation and uncertainty caused by events such as Russia’s invasion of Ukraine. Also, during the most part of 2022, investors and analysts have been predicting a global recession.
Causes of the current crypto bear market
The current crypto bear market has many causes such as Russia’s invasion of Ukraine which caused the prices of fuel to rise sharply. As global inflation increased, the United States started hiking interest rates to curb it.
As already hinted above, the bear run that has affected the traditional stock market also has impacted the crypto sector. Therefore, the increase in interest rate in the United States has led many investors to shun investing in high risk assets such as cryptocurrency. So far, the Federal Reserve has increased interest rates six times in 2022. The anticipation that it will further increase it in 2023 has prolonged the bear market.
Federal Reserve interest rate hikes- Tradingeconomics
The Federal Reserve has hiked interest rates several times in 2022.
Regulatory authorities such as the United States Securities and Exchange Commission threatened to take legal action against crypto projects which created fear and uncertainty. For example, it instituted a lawsuit against Ripple. During the same period China banned Bitcoin mining which forced many miners to relocate to other countries.
The collapse of TerraUSD and LUNA, early this year, exacerbated the situation since many investors lost much of their investment. It had a contagion effect and led to the liquidation of several crypto projects such as Celsius and Three Arrows Capital. The recent collapse of FTX has increased the mistrust some people have in cryptocurrencies. Generally, there is low confidence in the crypto market.
How long can the crypto bear market last?
Many investors want to find out when the crypto bear market may end so they plan their investments in advance. The good thing is that the crypto bear market will come to an end one day. In most cases, it takes several months to end. The average crypto bear market takes around 359 days. Thus, it may take about 38 months from its bottom to its recent all-time-high.
As a fact, the 2012 to 2015 crypto bear market lasted 415 days while the 2017-2018 one had 365 days. Finally, the 2019 -2020 bear market had 260 days. Therefore, the lengths of these previous bear markets give us a clue of how long it can last.
How have the major crypto bear markets recovered? How have the major crypto bear markets recovered?
The causes of the cryptocurrency bear markets are not the same, but there are some similarities on how they ended.
2014 to 2015 bear market: It started when the price of BTC tumbled from $1,135 to $175 on 14 January, 2014. The major causes of this bear market were the collapse of Mt. Gox exchange and the Silk Road marketplace. Key developments in the crypto sector such as the launch of the Trezor digital wallet, the initial Coin offering (ICO) boom and the Lightning Whitepaper led to the recovery of this crypto bear market.
2018 to 2019 bear market: The price of BTC dropped from $19, 640 to $3,185 between16 December 2017 and 15 December 2018. A hack of Coincheck and the increase in interest rate by the Federal Reserve contributed to this bear market. On the other hand, The NFT boom and PayPal’s entry into the crypto sector created confidence and momentum in the market which led to the recovery.
Crypto Market Recovery
The crypto bear market will definitely recover, although it is difficult to pinpoint the exact date. This is because the recovery depends on changes in fundamental economic conditions. It is most unlikely that the crypto bear market can recover in 2022 considering that the year is coming to an end.
Instead, analysts predict that the price of BTC will drop to between $10 000 and $15, 000 in the first quarter of 2023 when it gets into a longer term bottom. For a recovery to take place several things need to occur.
Based on previous bear markets, there should be a recovery of the total DeFi total value locked which is around the lowest point within two years. Also, the total crypto market capitalization should rise to over $2 trillion for a meaningful recovery to be realized. Currently, it is about 73% below its all-time-high.
Total Value Locked- Beincrypto
As you note in the diagram, the total value locked is more than $41 billion.
A crypto analyst bOnchain (@ghoddusifar) believes that a turnaround can only occur when the total market capitalization drops to the delta cap, which supports the market.
Halving event
Previously, we pointed out that there is a need for major crypto related events to occur if there is going to be a recovery from the bear market. The next Bitcoin halving event to occur in 2024 is likely to push the market into a bull run. In the past, the price of BTC rallied after the halving event which positively affected the entire crypto market. After the 2020 halving event, the price of BTC rose to its all-time-high.
Crypto regulation
Although it is unlikely that many countries will introduce comprehensive crypto regulations in 2023, such legislation would boost the confidence of investors. This follows the collapse and liquidation of several established crypto projects such as Celsius and FTX. What the market requires now to recover is confidence in the sector.
In the United States, the Securities and Exchange Commission is the one that can introduce the right legal framework to govern cryptocurrencies.
Investment friendly economic policies
The introduction of suitable economic policies is likely to lead to the bear market recovery. For example, if the United States stops increasing interest rates that can increase consumer purchasing power.
Conclusion
There were several crypto bear markets which were caused by various factors. Some of the causes include hacking of exchanges, collapse of cryptocurrencies and macroeconomic variables such as inflation and interest rates. Most crypto bear markets last between 260 and 415 days. Notable developments in the sector such as the NFT boom and greater adoption of DeFi products can help the crypto bear market to recover.
