Ines AissaniIf someone tells you they can predict financial markets, one piece of advice: run away. No one can boast of having complete knowledge when it comes to stock markets. Even though traders can follow certain trends and rely on certain criteria, the fact remains that it remains fundamentally a game of probability.
So nothing is certain? Can't we predict anything? Well, in fact, sometimes, we can predict certain broad lines without necessarily relying on intuition. There are a few elements that included in a set can tell us what happens next. For example, the fall of the FTX platform was predictable for many serious players in the industry, including the newspaper CoinDesk and influencers (like BitboyCrypto) on social media weeks before the carnage. Yes, you read that right: “predictable.”
Anyone who tells you otherwise and talks about unforeseen events or " Black Swan " are certainly trying to find excuses for their own blindness. Don't be fooled, maybe they will stop taking you for pigeons.
The fall of FTX was like the icing on the cake of a bearish year; The year 2022 was the ultimate hangover year for traders who benefited from a superb rally in the years 2020-2021. The stampede had to stop, you might say. And, it stopped…Yes, suddenly.
Let's see in this article how it all started, to try, as much as possible, to understand when this endless bear market from hell can stop...
The bear market, a refrain?
Many industry experts believe that the bear market began with the sudden implosion of Luna, founded by the very lunatic (the word is more apt) do kwon. Again, if you're told it wasn't predictable, get out the tissues. When dozens of influencers were promoting the Anchor protocol which offered no less than 20% return for the UST stablecoin, one did not have to leave Saint Cyr to predict the future explosion. It didn't fail, but a few excuses were enough for experts of all kinds to soberly dress up in their disguises as cryptocurrency sellers. Ponzi himself would not have dared.
In short, the domino had just started and since then, we have lost count of the number of companies that have gone out of business, leaving investors with nothing but their eyes to cry.
However, it's not as if the cryptosphere isn't used to these kinds of scandals. Since 2014 with the sudden closure of MtGox, investors have known that you can get your fingers burned with cryptos.
What I mean is that periods of recession are part of the hazards of the crypto market. There can only be upward periods. The stock market is by definition a continuous series of rising and falling markets and trading consists precisely of knowing how to position yourself in this terribly delicate game of trends.
For cryptocurrencies, it's the same. There have been and will continue to be bearish periods. Let's now look at a little history of the bear markets that the crypto world has experienced since 2011. Let's try to find a plot, if there is one...
A brief history of crypto bear markets since 2011
⬇️ In 2011, the price of bitcoin had fallen from $32 to around $0. This is called a dizzying fall. This frightened many investors who concluded that bitcoin was dead. While bitcoin took 01 months to reach $3, the loss of more than 32% of its value occurred in a few days. The crash was caused by hacking of the MtGox platform.
⬇️ In 2015, it was the end of bull run between February 2013 and November of the same year. It was an epic year that attracted many investors as bitcoin went from $32 to $1000 in just a few months. It was at this time that many media began to take a serious interest in bitcoin, as a speculative asset. In 2015, the market experienced a bearish cycle which caused bitcoin to fall to $170. This is explained by the decision of the Chinese central bank to prohibit the use of cryptocurrencies. The bank had banned financial institutions like banks from processing bitcoin transactions. The same year, the Mt Gox platform, still the market leader, had just suffered another hack…
⬇️ In 2017, the price of bitcoin reached its ATH, peaking at $20,000. It was clearly the year of great euphoria for bitcoin but also and above all for altcoins, notably ETH which reached the crazy price of $700. The year 2017 is clearly the year that attracted the most crypto investors. This is also the year when many influencer YouTube channels were created. The world of crypto influence had just been born, attracting more and more people into the ruthless world of crypto-assets.
However, in 2018, ETH was worth around a hundred dollars while bitcoin was trading at $3000. THE bear market had struck again, and again, it was partly due to a hack of the Japanese exchange platform Coincheck. The bear market was so violent and so cold that it was dubbed the “crypto winter.”
🐻 This has been the most devastating bear yet, eliminating countless crypto projects in just a few months. It was also a pivotal year for marketing for crypto projects as Facebook and Google banned cryptocurrency advertising. There were so manyscams about ICO notably that regulators wanted to protect beginning investors. This has pushed crypto companies to use influencers, sometimes unscrupulous (and especially little or not trained in finance and economics) to promote their tokens. The era of shitcoining and shilling was born. The lucrative market for crypto influencers had just consolidated.
In 2020, the world suffered the wrath of the covid 19 pandemic, which was beneficial for online purchases... It was above all a blissful period for cryptocurrencies which experienced the most beautiful bull run in its history. Metaverses, NFTs, crypto-assets, protocols of all kinds, it has been a party of easy profits on several levels for all players in the crypto industry.
⬇️ Then, in February 2022, Russia's invasion of Ukraine shook the world economy. In a tense period, the Anchor protocol offered 19% return on the UST stablecoin of the Terra blockchain without a lock-up period. Naturally, such a return attracted a lot of capital and individuals and businesses alike were seduced by so much profit. More than 50% of the UST in circulation were deposited on the Anchor protocol...The massive sales of UST then strongly impacted the price of the Luna token with which it is linked. It could have been a harmless storm but you should know that the UST was a algorithmic stablecoin intrinsically linked to the LUNA token. The latter, by losing value, led to the loss of the value of the UST which then suddenly lost its peg with the American dollar.
Even today, the domino effect of the UST crash is still being felt. The Terra blockchain crash led to various bankruptcies and implosions in the crypto world until the recent bankruptcy of the Silicon Valley Bank...
Why do bear markets happen?
As in traditional finance, markets undergo different interactions and there is never only one factor that can explain the start of a recession. However, in the crypto market, which is still recent and relatively little connected to the real economic world, we can observe that there are two major factors which are often at the origin of bearish trends.
Typically, security and regulation are the two elements that, especially if combined, can have a huge impact on the market. In any case, for the declines in 2013 and 2018, both factors are invoked.
🔒 The security problem
When it comes to security, consider hacks and hacks. This is one of the biggest and most serious issues for the crypto ecosystem. Every time there is a crisis in the history of cryptocurrencies, it is very often linked to a loss, a hack, a hack. When people are afraid of losing money, of course, they seek to withdraw. The worst thing about cryptocurrencies is that there is generally no insurance in the event of bankruptcy. In traditional finance, there are always central banks or governments to bail out the banks. As we saw with the fall of BlockFi or Celsius for example. No refund. Investors lose everything, as in casino.
For the market decline that we are currently experiencing, is not necessarily due to a security problem. It goes without saying that the fall of FTX stigmatized a latent fear among investors, but the bear market had already begun...However, the fall of FTX raised the red alert. All the investors who lost money in this unnamed fiasco, led by Sam-Bankman Fried are still not delivered. This had much more serious repercussions in the minds of investors than one might think...In the minds of many people, his image as a crook and baron value is inseparably linked – now – to the crypto industry…
👮 Change in law and regulation
Here again, it is a great classic which partly explains the bear markets in the crypto world. Many governments have sought to ban cryptocurrencies. We remember China's numerous attempts to ban the use of cryptocurrencies before seeking to limit the work of bitcoin miners. Nigeria or even Algeria had also spoken out in favor of banning cryptocurrencies in the country.
Announcements from various governments have often had a downward impact on the market. Of course, we do not need to explain the terror that this can create among professionals in the sector on the one hand and retail investors on the other. This irrevocably disrupts the market and slows down its development. Many countries cannot enjoy a thriving crypto ecosystem precisely because of unclear or inadequate regulation.
However, over time, we observe an opposite trend as the crypto industry becomes ever more mainstream. More and more recognized financial institutions have invested in bitcoin and cryptocurrencies and many brands – with the movement of metaverses and NFTs – have labeled themselves crypto enthusiasts. Thus, there are more and more countries that can be described as crypto-friendly with beneficial policies for businesses and crypto holders.
—> Read the article: The 10 countries that are the most crypto-friendly
Will the 2022 bear market continue?
We can see some similarities in the occurrences of markets going down. Finally, we can even comment on the temporal spaces by saying that this happens approximately every 4 to 5 years (2013,2018,2022 therefore).
As for duration, we can generalize and say that bear markets last around 20 months. However, remember that this bear market was not directly caused by a hack or security issue. We can trace the start of the bear market to the start of the war in Ukraine. It was at this precise moment that the prices of cryptocurrencies began to plummet.
Usually, it is said that the crypto market is not directly correlated to traditional finance markets. What we observed this time is that in reality, this correlation becomes ever more effective and real...We saw it recently with the fall of Silicon Valley Bank who unscrewed the stablecoin USDC a few days before getting back on track thanks to a safety plan...
Thus, the bear market for cryptocurrencies in 2022 is strongly linked to the traditional economic market. While the Federal Reserve decided to increase interest rates, investors stopped investing in crypto-assets, considered riskier.
Then you know the rest: the scandals, the thefts, the scams, the shillings of uneducated promoters, the scams then fomented a huge feeling of generalized FUD... This caused more and more reluctant investors to desert.
When will this bear market end?
The bearish period and the fall of large crypto companies will leave an indelible mark on the minds of investors. The loss of confidence is so deep that it will take a long time to regain it…
Ah, you've read this far! Do you really want to know when this bear market will end? Well, I don't have a crystal ball and I don't really have an answer to that question. Although we can assume that if the federal authorities relax the rate, cryptocurrencies could rise again…
To take up Paul Krugman's theory, we must understand that "crises always come back" and that bear and bull markets are part of the "life" of the financial market. Like on an electrocardiogram, if there are no more cycles, it is because there is no more life...QED, eh.
This is how I end this article, hoping that this bear market is clearer to you. I would like to add one thing though: don't forget to distinguish between cryptocurrencies on the one hand and bitcoin on the other.
As we can currently observe, after the current financial tremors in the banking sector, bitcoin is doing quite well. This was also what we had already observed in the results of the year 2022. In times of crisis and turbulence, Bitcoin proves ever more resilient…
By the way ...
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