Crypto Bear Market
Although the ups and downs are a part of the process there exist certain terms for them called “bull run” and “bear run” also known as a bull or bear market. The two terms hold their relevance even in the world of cryptocurrencies as it falls under the bracket of a market.
In this issue let’s understand what exactly is a bear market and how it affects the investors and also the people of the world.
What is a Bear Market?
A rapid, consistent and sudden downfall in the market is considered a sign of a bear market. Metaphorically the term is also derived from the technique used by bears to attack where they swipe their paws down while fighting.
Historically it is derived from an old practice where a ‘bare’ bulletin board signalled that the market is weak.
Furthermore, a bear market is made even more noticeable when prices of most commodities keep falling and are expected to fall even more.
It is also key to understand that all the markets in the world (stock and crypto) are linked together by a single thread so a rise or fall in one will surely reflect on the other, except in the case of manipulation which in simple terms can be deemed as an illegal practice.
The opposite scenario of a bear market/run is called a bull run.
Crypto Bear Market
Just like the routine price flow of a stock market is determined by looking at a certain index (Example: Sensex or NASDAQ) in the crypto world too the basic sentiment of the market is determined by the price of Bitcoin (BTC).
Majority of the cryptocurrencies bank on Bitcoin for their price movement. In an ideal scenario, if the price of Bitcoin goes up, then the value of altcoins (cryptocurrencies other than Bitcoin) follows suit in a day or two.
Conversely, if the price of Bitcoin falls the same can be expected to happen with the altcoins as well.
In saying that one must also acknowledge the fact that the crypto market in itself is highly volatile functioning round the clock hence even the slightest change of events in one corner of the world can affect the price significantly.
Diving into the sentimental aspect of a bear market. In the crypto world, the bear market is often noticed near the upcoming Bitcoin halving.
Technically the phase is an indication of supply being greater than the demand which makes the price go down. This fall in price triggers low confidence in the investors and makes the price plummet even more.
This entire scenario is called FUD: Fear, Uncertainty and Doubt. During a bear run, all the three elements of FUD are at their peak which drives the price even further away from all-time highs.
In the past two years, the market has witnessed a historic bull run with returns off the roof.
The end of 2018 saw Bitcoin plummet to a price of approx $3,500 and even below during the beginning of 2019. But by the middle of the year, it did manage to cross the price point of $11,000 before finally dropping to $5,000 (approx) due to the coronavirus pandemic.
Even though the year 2020 made the stock market see big dips, the Bitcoin halving in May shot the price up significantly.
By the end of the year, the price of one Bitcoin was just shy of $30,000 and almost a year later we saw Bitcoin reach its all-time high of $68,000!
But today, (at the time of writing) the price sits at approximately $20,000, a whopping 70% away from the all-time high clearly signalling a bear run.
Instead of Bitcoin other altcoins too are miles away from their respective all-time highs.
For example, Solana which has the highest price of $260 sits at only $36 and Ethereum with an ATH of $4,800 sits at $1,200 which is only a quarter of the price!
Significance of a Bear Market
In 2022 itself the crypto market has been subjected to more than one bear run all of which have had their own reasons.
To start things off, Russia’s invasion of Ukraine acted as a major trigger. It was then followed by the iconic death spiral and collapse of Terra Luna and UST (more on that in a future blog).
Lastly, the rising inflation and its impact on the global GDP has put markets all over the globe in a dark zone.
Although the onset of a bear market sounds upsetting, a lot of traders do get their benefits out of it. Shorting is perhaps one of the most profitable techniques for traders worldwide.
Apart from that, a lower token price makes it cheaper in fiat value, this may even drive up NFT sales as they are now available for a lesser monetary value.
Furthermore, a bear run even gets rid of panic sellers and kind of acts as a filter for separating short-term investors from long-term investors.
What should one do in a Bear Market?
It is true that a bear market is difficult to trade in specially for inexperienced traders but there are a number of things which one can do:
Averaging:
Since everything is cheaper one can buy more units for a lesser price and bring down their overall average price.
Staking:
Certain exchanges allow investors to stake their tokens and earn interest on them. This way one can earn crypto without spending more.
Stable Coin investing:
Altcoins like USDT or BUSD are pegged to the US dollar and are hence called stable as their price always tries to remain 1 dollar. A stablecoin investing is free from any risk and when staked it only guarantees more returns.
Conclusion:
When it comes to the bear market it is really difficult to predict when it might end and what the actual rock bottom is. But it also correlates with the fact that everything that goes up must come down.
A market has its own ups and downs but in the long run, it is always the long-term investors (who invest in fundamentally good coins) who walk away with greater returns.
As mentioned before the entire crypto world is a highly volatile space so DYOR (Doing Your Own Research) is a must before finally taking a call into entering this space as an investor.