CRYPTO BEAR MARKET WILL SOON BE OVER…OR NOT
The growing level of interest rate in the United States of America is worrying, not only to Americans but to the global community. The American government can’t continue to increase interest rates for too long; soon, it’ll reverse its decision and things will return as they were, many analysts have postulated. This growing sentiment in the cryptocurrency space that the United States of America, and Joe Biden comes to its senses to see that increasing interest rates at a time as this is causing more harm than good to the economy is waning. These rates have caused a sharp fall in the prices of cryptocurrencies on redot exchange and other exchange platforms, a sign of a bearish market. And not just digital currencies, it has affected the entire financial market.
The digital currency market has been experiencing a bearish run for months now, due partly to the increasing interest rates in the United States, and some other interconnected variables. The run has come under a lot of questions:
When will it end?
What variables need to change for the bullish market to return?
How low will the price of digital currencies go?
Will the market ever recover from the bearish run?
HOW THE BEARISH MARKET WORKS
Every financial market is volatile, whether it’s the stock market or the foreign exchange market. However, when it comes to market volatility, no other financial market comes close to the crypto market. It is so volatile that traders and investors aren’t so surprised when prices slump so low. But the recent price slump, especially of bitcoin, and the other top altcoins, shows that the drop in prices isn’t one of those ‘bad days in the market’, it is a reality: the bearish season is here.
The definition of bearish market is when, in financial markets, the price(s) of assets fall by 20% below its last all-time high. For example, the price of bitcoin fell more than 20% below its all-time high, which was $69,000 as at November, 2o21. As at the time of this writing, bitcoin was valued at $29,603.50. With more than 50% price drop, the crypto market, as well as other financial market, are officially in a bearish market
This isn’t the first bearish market the crypto market has experienced. In 2018 and in 2020, the prices of bitcoin fell, leading to what is now known as the Crypto Winter.
THE WINTER MIGHT BE LONG, AND HARSH
Whenever the market experiences a bearish run as we are seeing now, it’s due to a plethora of reasons, one of such being unfavourable news in the media. In 2018, the bearish run was fuelled by rumours that bitcoin was a scam, and its recovery, propelled by bitcoin halving. In the wake of the realisation that the market is in a bearish run, investors and traders are extremely careful to trade and invest. All thanks to crypto’s high volatility, predicting where the market is headed next is as hard as correctly predicting how the Boston Celtics will play. Usually, the market slumps into a bearish run after there’s been a frenzy in the bullish market. During this time (the bullish run), investors are happy, people are buying cryptocurrencies, and projects are springing up from left to right.
Now, when the frenzy cooled off, the prices, ideally, will fall. But not as much as we’ve experienced.
Three main factors are behind the bearish market, according to data, are:
- The growing interest from institutions on cryptocurrency is relaxing
- The interest rates by the Feds are skyrocketing
- Investors are unsure of the cryptocurrency market, and are seeking safer options.
- Investors are unsure of the cryptocurrency market, and are seeking safer options: The economy around the world, and in traditional financial markets, are experiencing bearish runs. At a time like this, the attitude of investors is to be cautious, and see where the market leads. One of the major reasons crypto investors are worried (and rightfully so), is that the cryptocurrency market is unregulated.
In such a market, investors are not protected, and this leaves many concerned. What happens to their investments should the market crash. The law doesn’t protect crypto investors; therefore, it is hard for asset losses to be recorded, and taxes overlooked.
Also, the prices of cryptocurrencies are so volatile that the once-held notion that bitcoin can be used as a hedge against inflation is now fading into thin air. Investors are now moving their money into safer, liquid assets that are protected by the law
- Increasing Interest Rates by the Fed is hurting the Market: In order to deal with inflation in America, which rose to as high as over 7% in 2022, the Federal Reserve opted for raising interest rates.
This move was taken to discourage people from borrowing and reduce spending. This move means, in simple terms, that people no longer have money to invest in cryptocurrency and other markets. This move also signifies that investors’ disposable income, which is what some use to invest in bitcoin, is low.
With high inflation numbers, and stagnant income, investors are more concerned with using money for the necessary things; it also reduces the confidence of investors in the market.
- Institutions are relaxed on cryptocurrencies: In 2021, blockchain technology was the hottest thing in tech. Everyone wanted to join the train, from companies creating their NFTs to others accepting bitcoin and altcoins as payments, to some developing special tokens. But that optimism has since evaporated. The belief that cryptocurrency, and the best bitcoin explorer, will change the financial system has cooled off. Many of these institutions are instead moving their money to traditional stores of value assets such as gold and silver.
THE MARKET MIGHT BE GOOD FOR THE WHOLE SPACE
So, when there is a bearish market, market tension is high. The mantra, ‘buy the dip’, is often echoed on social media. But sometimes, without the right understanding of the market, buying the deep might make investors lose more money.
Therefore, in such markets, bad actors are squeezed out of the market. Investors and companies who had gotten into the market when bull run was on, people who had no plans and structure in place, are often exposed for the phoney they are. And many old-time investors are hopeful that the crash will weed out the bad eggs, and leave the good ones.
You see, bearish markets are in cycles. Whether it lasts for a year or two, the cycle will end, and when it ends, only the strong will remain.