Investors are experiencing panic, fear, and uncertainty due to the current crypto bear markets. This dire situation began in January 2022 when crypto’s global market capitalization fell below $2 trillion. The price of Bitcoin ( BTC) dropped by more than 70% since its record high of $69044.77 on November 10, 2021. Similar trends can be seen in other major cryptocurrency such as Ether ( EETH), Solana( SOOL), Avalanche( AVAX), Dogecoin [ DOGE] have also been observed. They have fallen by approximately 90%.
Does history have any clues about the end of the bear market? Let’s begin by looking at the causes of 2022’s bear market.
The 2022 bear market: Catalysts
The current bear run is due to several factors.
The bear market began in 2021. Many regulatory authorities threatened to impose stringent laws on cryptocurrencies during this time. Fear and uncertainty arose in the market. The United States Securities and Exchange Commission (SEC), issued a lawsuit to Ripple. China also banned Bitcoin mining. This resulted in many of the country’s BTC miners being forced to move to other countries .
The market was impacted by rising interest rates and a global increase in inflation, which led to lower crypto investments than anticipated. While the United States is often in the news for its interest rates and inflation, other countries like India have faced similar problems.
Notably, the Federal Reserve had announced earlier in the year that it was taking strict measures “accelerate taping of monthly bond purchases.” This meant that the United States would introduce measures to slow down the economy to curb the ever-rising rate of inflation. Below is the graph showing the inflation trend between 2016 and 2022.
The Federal Reserve raised the federal funds rate twice during the year to lower inflation. This resulted in a decrease in the disposable income of U.S. citizens, which dampened investment efforts for risk assets such as cryptocurrencies.
According to crypto analysts, leverage is another reason for the current bear market. Leverage is when you pledge a small amount as collateral to obtain a large amount of capital for investing. This is where investors borrow money from exchanges to finance investments in the market.
Leverage has the downside that trading positions can become liquidated once the asset’s price falls. This could lead to a crash in cryptocurrency prices. This can lower investor confidence and cause fear and uncertainty in the market.
Traditional markets may have protections and circuit breakers, but this is not true for crypto markets. The recent collapse of Terra and its LUNA token, Terra Classic (LUNC), and TerraUSD (UST), stablecoins is an example. Several other crypto companies, such as Celsius and Three Arrows Capital, filed for bankruptcy during the same time.
Signs that the bear markets are coming to an end
Analysts use market cycles to predict when a bearish market will end. Market cycles generally consist of four phases: accumulation (markup), distribution (distribution), and a markdown. The market cycle for Bitcoin lasts four years or 1,275 days. The bear market is the most common phase.
Grayscale says that the crypto bear market begins when Bitcoin’s realized price exceeds its market price. Grayscale defines realized price as:
“The sum of all assets at their purchased price or realized market capitalization divided by the asset’s market capitalization which gives an indication of how many positions are in profit or not.”
On June 13, 2022, the realized price of Bitcoin exceeded its market price. Below is a table showing the Bitcoin prices when the market price was higher than the realized one.
It’s interesting to see that the cycle had been completed for 1,198 days by July 12. The entire cycle lasts 1,725 days. This means that it took four months for the realized price to surpass the BTC market price.
Bitcoin would still need to hit its all-time high at the end the four months. However, it will take another 222 days. It would take five to six months to see the bear market end, starting in July. This graph shows the expected trajectory for the current cryptocycle.
If the current market cycle follows the same structure as the 2012-2016 cycles and Grayscale’s findings, then the bear markets could end between November 2022 & December 2022.
How long do Bitcoin traders anticipate the bear market will last?
Bitcoin maximalists often look to the Bitcoin halving to predict the next bull market. If you look back at history, BTC reached its peak 18 months after each Bitcoin block reward halving.
As shown in the graph, Bitcoin’s halving preceded crypto bull run. BTC maxis, who believe the halving schedule directly impacts Bitcoin ‘s bullish or bearish nature, might be right.
There are many reasons why the 2022 bear market was unique. The first is that key macroeconomic variables like high interest rates, soaring inflation and other key macroeconomic variables increased the impact of the bear market. The bear run was also triggered by the Terra-LUNA crash, high leverage in the crypto ecosystem, and the subsequent Terra-LUNA collapse.
This bear market is notable in that there has been a strong correlation between Bitcoin and the stock market, with a correlation rate exceeding 0.6 in July 2022 according to Coin Metrics data. This is also the first time the BTC value has fallen below its previous peak. The value of BTC fell below $17,600.
Crypto investors are baffled by the contrast between the 2021 crypto bull market and the 2022 bear markets. Analysts predict that the bear market will end in November 2022 or December 2022. A bull run could begin between 2024 and 2025.
These views and opinions are the author’s and do not necessarily reflect those of Cointelegraph.com. You should do your research before making any investment or trading decision.