What is a Bear Market and are we in one?
Bears and Bulls, Dogs and Cats, Whales and Sharks, the stock market and the zoo have a lot in common. Angry, wild, caged and tamed to fit inside of their eco-system. Some animals are easier to feed and might even get too lazy to move, while others cost the zoo new interns after every feeding time. The market is a wild place indeed, but only because the humans behind the digits are also emotional beings. No matter how something can be interpreted by graphs and algorithms, ultimately the graph will show what a person is taking the decision to do or not do.
We can look at the work done by the best read traders or the luckiest gamblers and all we see are people making decisions based on enough information to make them tilt towards yes rather than no. In the spirit of this dichotomy for fortune or falter , the market as a whole can be interpreted as stagnating into a fall or enthusiastically pushing towards a rise. Depending on the direction these trends are aptly named Bear or Bull markets.
How to Identify a Bear Market?
In the Technical sense, a bear market can usually be announced after a prolonged decline of prices followed by a sudden drop and ‘new normal’. As this isn’t referring to an individual stock rather the market as a whole over a prolonged period of time, declaring the state of a bear market can be rather difficult if the price fluctuation hasn’t had enough time to be tested. A false declaration by a powerful media station can shake up the market emotionally and create immense F.U.D fear uncertainty & doubt.
When looking at the phenomenon culturally or socially, having a bear market can be identified by a variety of factors, all which affect the overall attitude of traders in regards to the industry as a whole. Scams, rug pulls, lawsuits, all of these come into the cultural narrative of a bear market and play a huge role in the creation of new adopters. If you feel like both these characteristic are identified in the charts your seeing and the message you are reading, well my friend, you just might be in Bear Market.
1.Market Confidence
For the cryptoverse, it is ironic to say, but the bear market settles in historically after every launch of a new protocol product, like stable coins in 2014, ICO’s in 2017 and most recently, the DEFI market of 2021. Disclaimer, this is not financial advice, but you can read about DEFI vs NFT as the biggest cultural trend in my next article.
The last 2 years were characterized by lots of farming protocols and Defi tokens that ended up being huge rug pulls, drowning billions of dollars and destroying a lot of small bag retail buyers. This is to be expected in a unregulated decentralized financial system with almost no oversight outside of group forums, but ultimately these things add up to a public opinion that is still terrified of the crypto market. Nobody really knows if some of these companies will off and disappear one day, very unlikely for some, but many of these smaller chains are centralized projects which makes confidence not at a level that allows for mass adoption to be seamless across the network.
Maybe DEFI will hold the key to mass adoption, perhaps like most trends 90% of the projects will disappear in their own smoke while the rest become founding members to the next tier of the crypto economy. All in all, Market confidence has to do primarily with the consistency of what is available and how they have historically performed over time, which in the cryptoverse is difficult to find. Often times, projects with serious potential get absorbed, renamed or transform into a self-contained platform, that performs rather mildly on markets as it has little speculative value prior to amassing more significant usership. The rest melt away as founding users empty their bags to take some profits and red-pilled fans go down with the ship.
2. Network Cohesion:
In the classical stock market, when securities drop by 20% it means a serious level of pessimism has hit investor. Common in times of a recession, as people are having trouble spending and need access to liquidity quick or must face an unsecure financial future. Bear markets settle in for the long haul and become dependent on exterior forces to revitalize the investor energy. Stratified societies often create broken markets because the financial security on the ground is far from stable and the appetite for risk is tamed.
For crypto, the market is much more cult like for early adopters, and so the panic to sell or suffer loss is fraternalized in meme culture. Ultimately, the bear markets are a bit of a blessing in disguise, as they allow for new adopters to buy low and build on the lost hype of the previous run. Yes profits were made in the past, but more often than not, the adoption curves brutal honesty took from those who entered and sold too late. The bear market is a slow paced trend where the average curve is very low, those that arrived last to the run are going to be cursing, and will either have to hold for a future bull run or swap at a loss to navigate the market for mid-term opportunities.
If a project has mitigated the bear market hit and maintained an average range for their price, their capacity to swap for what was once a higher priced token has increased. From there, these companies can acquire and hold new asset reserves in their treasury and re-invigorate the bearish network into a new climb. But if the network of buyers and communities that uphold the culture are not on the same page, then the market will not hold its direction. A few twitter accounts in the crypto sphere were talking about the loss of BTC’s market dominance in early November, for this group, that was a clear marker of what was to come as BTC is the cornerstone of the markets evaluation.
3. Its a Trend not a Correction:
Buy the DIP ! SHORT SQUEEZE ! HODL!!! we have all heard them, but these are concepts best suited for when the market is still yoyoing, and definitely not meant to be taken seriously during implosion. Corrections are naturally a short-lived phenomenon, the main discrepancy between the two is the prolonged melting of the price that precedes the drop. Corrections will occur over a few hours or a few days, after periods of over purchasing an asset. An indicator reference could be a scotch RSI above 80 , these occur naturally and happen when late buyers need to flip early, and hodlers who observe the huge upsurge in demand, dump large amounts of the coin to take profits at an inflated value than their curve was normally offering.
In the crypto world, a bear market doesn’t always occur during overvaluation, rather when the trend begins to tilt and lose transactional dominance. Whales take profit when the trend of retail sales subsides. This can be observed for example by large accounts moving assets on exchanges to sell out for stablecoins* in preparation for swaping it into a coins that are headed to an absolute bottom.
It’s difficult to think that something can be re-invigorated to its all time high, but that's often an indicator of which crypto’s have a community that is actually worth while and an economy that makes sense. But major accounts moving money is definitely an indicator that something is about to go down. If your studying the market and you are not the one with heaviest bag, keep in mind that these movements can be seen on the blockchain, and have the ability to shift prices as a whole.
Is 2022 going to be a Bear Market ?
Should the drop persist until after march than we can confidently say yes the market has entered a bear status. should this correction re-enter new speculative charge by the end of January, than perhaps the bear market just finished.
In 2021 there were key indicators that demonstrated the tilt after BTC reached an all time high in July and then again in November. As my readers I would always remind you that this is not financial advice, rather a collection of data to inform rather than shill to.
In sum:
- The Chinese ban and incursive SEC law suits had a huge impact that drove market confidence down. Especially with the sudden retraction of Chinese mining facilities. Although the SEC has claimed it would not ban crypto, regulation is definitely not looking like a friendly chat.
- Public sentiment and regulation affect the way traders view and feel about the market. At their peeks of negativity, they can be turned off from the industry and begin to pull out. With nearly 14 billion in scams this year, what can we expect from the majority of the public who are not only unfamiliar with crypto but cannot afford the risk.
- Bear markets occur when prices in a market decline by more than 20% over a period of time and cannot break into an All time high direction. They are often accompanied by declining economic prospects in the industry, that sour new adopters. In 2021, economic prospects were very anticipated but resulted in more rug pulls than benefits, and are still copping high ever increasing transaction fees that break the spirits of most small bag retail investors
- Bear markets can be longer-term, lasting anywhere from several weeks to a few months. it is argued that BTC’s journey after the decline in 2017 was in fact a bear market until 2019.
- Short selling, put options, and inverse ETFs are some of the ways in which investors can make money during a bear market as prices fall. 2021 was the year of the meme stocks and short squeezes that left investors either dangling in the dust, or more money than they could ever believe a videogame retailer could make. The uncertainty is hilarious the money is real, the sentiment is dire…
Thank you all again for reading, catch me next time in the Cryptoverse !
