- Bitcoin’s correction has led to many asking if we’re in a bear market
- How can we tell if Bitcoin is in a bear market?
- There are several factors we can look at to make a determination
With Bitcoin’s recent collapse there has been talk of a bear market as well as a 2013-style breather before a big rally later in the year. The problem with identifying a bear market is that there is no hard and fast rule – it’s the kind of thing that is only really obvious a short while into it. There are however a number of factors we can use to analyze the situation and give us clues as to whether a Bitcoin bear market is upon us, which we’ll look at in this article.
Fundamentals
Bitcoin’s fundamentals haven’t changed since the day it was created – it operates in the same way it did when the Genesis block was mined in 2009. The Bitcoin blockchain is more secure than ever and Bitcoin’s use case has got massively stronger thanks to the Coronavirus crisis. In a fundamental sense then, we can most definitely say that Bitcoin is not in bear market territory.
Sentiment
Sentiment around Bitcoin has been overwhelmingly positive for the past year. We have seen its use case as a decentralized asset hailed, leading to institutions buying in and some of the world’s biggest banks and investment firms offering crypto solutions for their clients. Any news coming out over the past year has been good news.
However, since Bitcoin topped out in April the narrative has reversed massively – a media blitz on its poor environmental record has been the catalyst for a flood of negative news of all types from all round the world, helping dump the price further. Suddenly there is talk of institutions selling rather than buying, of Chinese Bitcoin whales dumping in advance of a government ban, and even an alleged investigation into Binance.
In a bull market an asset absorbs these blows and keeps on grinding up, yet the constant flow of bad news has helped to crash the price, suggesting that it is having its desired effect. This isn’t a concrete sign that a bear market is imminent, but it is significant that for the first time in over a year bad news is having a negative impact on Bitcoin.
It’s also worth noting that there were other signs of a market top in recent weeks – the Coinbase app being top of the download charts, the world and his grandmother buying DOGE at $0.75, and grand targets for various coins even after they had already done hundreds or thousands of percent. These are the sorts of signs the crypto market saw at the very end of the 2017 bull market, not on the way up.
Technical Analysis
Technical analysis is another component that goes into a bear market calculation.
Investopedia states that an asset is in a bear market when it experiences “a decline of 20% or more over a sustained period of time—typically two months or more.” On April 13 Bitcoin hit $65,000, since when it has dropped 42% to its current price. This has taken seven weeks, so it’s too soon to tell whether the downtrend will be prolonged.
One could argue that a 42% drop is equal to two months of 20% drops, but we know that Bitcoin moves faster than other markets, so a 40%+ drop might be considered the same as 20% in a regular market. There are several key levels to look out for to determine the medium term:
- Weekly close above $42,000 = likely immediate continuation of bull run
- Weekly close under $30,000 = likely mini-bear market before continuation
- Weekly close under $20,000 = likely long term bear market
These are of course not hard and fast rules, but they fit with the key support and resistance levels and typical bull run/bear market behavior.
Bear Market Status Will Become Clear Over Time
As we can see, Bitcoin is not currently in a bear market, but the next couple of weeks will go a long way to determining its medium- and long-term future. It’s clear that the narrative has turned against Bitcoin, but the fundamental and technical factors offer hope that this is just a natural correction after a recent high. For the sake of our portfolios, let’s hope this is just a short breather in a bigger cycle.
