Why This Crypto Bear Market is Different

The 2022 bear market has been exceptionally challenging for digital asset investors, with Bitcoin and Ethereum down 75% to 85% from the ATHs, as this article from Glassnode explains very well. The excellent Benjamin Cowen had fun comparing the different Bear Markets. Today we are going to compare the different Bear Markets cryptos and talk mostly about Bitcoin. Let's get started!

Introduction

Before speaking about where we theoretically are in this bear market compared to the bear markets before this one. We will try to have some kind of perspective on the whole situation and not miss the forest for the threes.

On one hand, history does not have to repeat itself. For instance, if you would use the first bear market to say that it is how the second has to go, clearly that would not have been a great strategy. However, we want to give an overview for people who would have liked to know what the crypto market looked like in 2018 and the following months during a bear market. On the other hand, it is important to understand what a bear market would have been like because at the same time after the peak in the previous bear market we were about down by the same percentage.

Now, a big difference between the bear market we are experiencing right now and the one before is that we had another leg down. If you measure it from April, you can consider that this bear market has been longer than the previous ones. But we prefer to have a conservative approach and take the data from the actual peak in November.

6 indicators to help you compare bear markets

1 - BTC ATH Drawdown

Below, you are looking at the drawdown, which is a graphical representation of the percentage drop of Bitcoin from its historical high. Thus, on the y-axis it is a percentage figure:

Source: TradingView

In 2011, the market bottomed out after losing 93 percent of its all-time high price. In 2011, the market bottomed out after losing 93 percent of its all-time high price. In 2015, -82 percent so the market made its low point.

We are currently down in this bear market to -73%. The wick that the market made on $17,800 is actually -75% but it was not a closing candle. So the question is whether or not that is enough.

The first thing you may notice is that after the same amount of time from the cycle peak for Bitcoin during those bear markets, we were also around the same ROI. A lot of people say: this time is very different, the macro is bad and of course it is. The macro is worse than it has been during the previous bear markets mainly because inflation is so high. But the thing is that, at the end of the day, if you just look at the ROI as measured from the peak as a function of time, we are always where we always have been during these bear market phases.

2 - The ratio between gold and BTC

Here is a chart that represents a fraction composed in the numerator of gold (XAUUSD) and in the denominator the Bitcoin (BTCUSD), the all-time history index. For the past 10 years, in weekly, the W for weekly, well, the market has joined a superb chartist resistance:

Source: TradingView

So that means that the ratio has a good probability of pulling back. If the ratio pulls back that means that the numerator is underperforming and the denominator (in this case Bitcoin) is outperforming.

All the declines in the XAUUSD/BTCUSD ratio corresponded to a long-term low point in Bitcoin.

In 2015, on a logarithmic basis, we see that the ratio was much higher. However, in 2018, the ratio is about the same level as today. Will this time be an exception?

3 - BTC Dominance

Bitcoin has outperformed altcoins since the beginning of the year. Its dominance, i.e. its weight in the total capitalization has increased from 39% to 49% which is normal because in a bear market BTC has this defensive characteristic within the crypto market:

Source: TradingView

We notice that in 2018 the Dominance of BTC has fallen more than it has so far in this bear market.

4 - Crypto Total Market Capitalization

The ATH of 2018 is here (black line).

Source: TradingView

We can see that the amounts are not quite the same. This makes sense and is due to the presence of many more institutional players in the crypto market now.

5 - Crypto Fear Greed Index

The contrarian analysis of the financial markets is based on the sentiment of individuals:

Source: coinglass.com

History has shown us that in order to find a major low point, this indicator must be on an extreme.

6 - BTC Futures Open Interest

Here is the positioning of institutional investors on futures contracts and in particular on the Chicago Stock Exchange, the CME:

We note that the long-term supports are to be watched (13,000-14,000$).

Conclusion

The main point we want to emphasize is that a lot of the gains people have made during 2020 and 2021 came from stacking in 2018 and 2019. The prior bear markets and accumulation phases show that we should theoretically have plenty of time. We know that the next halving is in 2024, which is usually a popular narrative for the Bitcoin bull market but also we need access to cheap liquidity and we are not simply to get that when the FED is raising interest rates and we are going into a period of quantitative tightening rather than quantitative easing. Make no mistake about that, the FED will pivot one day but we do not think they are going to start cutting rates this year. As usual, this article is just a thought process and it is up to you to make your own opinion.

Disclaimer: This article is for educational purposes only and is not intended as investment advice. Qualified professionals should be consulted prior to making financial decisions.

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