Cryptocurrency Bear Market

A cryptocurrency bear market happens when the prices drop and lack of investor confidence causes the drop to be long-term as investors hope to avoid losses by selling off their holdings. Bitcoin hit its all-time high of $19,783 on December 17, 2017, before the market turned bearish. Experts in the space – if there is such a thing – agree the current cryptocurrency bear market could last for several years, or it could end after a few months. The only certainty is that no one is certain, given crypto is an uncharted territory with more players than bears and bulls.

Bitcoin Whales

Individuals holding a significant amount of Bitcoin, or any altcoin, are known as “whales”. They hold so much that when they buy or sell the impact on the market can cause a “wave” vs. a “splash”. They have the power to move prices in their preferred direction buying or selling large quantities. When the volumes are low; all it takes is selling a couple of million dollars worth of BTC to trigger panic selling. Inexperienced investors might ask why whales would sell their Bitcoin at the bottom?  Answer: as the price falls, they keep buying on over the counter markets which doesn’t affect the price. Afterward, they pump Bitcoin on an exchange to push the price up. Easy to do when the volume is low and you have a ton of Bitcoin to play with. That said, recent articles discuss the positive impact Bitcoin whales seem to be having on the market vs. a negative one.

“Whale watching” in crypto means you watch how, when and where these individuals are trading.  They can be as difficult to spot as actual whales unless you know where to look. Whale watchers look for abnormal changes in prices, or volatility when the market is otherwise quiet, and try to go along for the ride to profit.

Cryptocurrency Bear Market - Whale Watching

Investor Sentiment

While trading cryptocurrency is, in many ways, radically different from trading the traditional stock market, the distinction of bull or bear markets is the same.  A cryptocurrency bear market is driven by caution and pessimism on the part of investors expecting lower highs and lower lows. Holders of cryptocurrency in this environment are more likely to sell than buy, and often mistake a price correction as being part of a sustained downward trend, selling too early.

A bull market is defined and driven by optimism, and investors have a positive outlook regarding the direction of market prices. Buying is generally encouraged and FOMO (fear of missing out) can drive buyers to jump in at or near all-time highs – which pushes prices even higher. The 2017 bull run of Bitcoin started in December 2016 as the price surpassed 2013 all-time highs. Investors who bought Bitcoin before mid-2017 are still seeing gains, but those who FOMO’d and bought after October 15, 2017, are in the red.

The last Bitcoin bear run of 2014 lasted into the summer of 2015 and the price dropped significantly. While the media reports that a lot of investors who bought high have lost money, one has to wonder if the number of FOMO investors is really that high. If not, then perhaps the current cryptocurrency bear market will be less severe than 2014. Thus far, the bears have not managed to drag the price of Bitcoin below $5,700 per coin despite trying to do so three times since the December 2017 all-time high.

Wide Range Effects

Market analysts generally agree that the cryptocurrency bear market will have little effect on the broad stock market because the crypto market remains tiny in comparison to the dotcom boom, for example. The dotcom Internet stocks in the late 1990’s represented a substantial portion of a large sector of the economy. Whereas the sum total of all cryptocurrencies in the world today is smaller than that of just one of those dotcom companies.

That said, some believe there are ways in which the aging, nine-year-old bull market in stocks could be affected. Bitcoin prices rose dramatically at the end of 2017 as the economy began to accelerate. Investor confidence fueled both the global equity and crypto markets, thus a sustained cryptocurrency bear market could have an effect on overall investor sentiment. Especially if crypto prices were to crash significantly. As more mainstream companies jump on the “blockchain” bandwagon, a crash in crypto could have adverse effects on their stocks. When prices are going up, even if risky, investors are willing to go with the flow. By the same token, if prices drop and investor confidence is shaken, a mass exit can occur on more than one front.

When Will It End

Just like every other market, when money flows in the price goes up, and when money flows out the price goes down. As the cryptocurrency bear market is seeing more fiat liquidation, prices keep dropping. However, Bitcoin has proven to be more resilient than some experts would have imagined and many in the space are just waiting on the sidelines to time the bottom before buying. If Bitcoin can rise against a falling tide, it becomes a candidate for investment when the market turns. Meanwhile, until Bitcoin capitulates, this cryptocurrency bear market is unlikely to be over. Wait for the next “bitcoin is dead” headlines from mainstream media, then buy – but we’re not there yet.

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