Crypto Won’t Recover While Retail Feels the Pinch

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  • The crypto market may be looking like it’s approaching a bottom, but that doesn’t mean a bull run is imminent
  • New capital is needed to fuel a bull run, and there just isn’t any to go round
  • The cost of living crisis is using up all reserves and will continue to do so

Spend any time on crypto Twitter and you will always find someone who thinks the next bull run is round the corner. We even suggested something similar ourselves not long ago, but this was from a purely technical standpoint, and we suffixed it with an important caveat – until inflation starts to reverse, charts mean nothing. With Bitcoin beginning to stagnate and more calls that the bottom is in as a result, it’s important to remind ourselves that while money remains tight crypto will remain grounded.

Retail vs No Retail

The difference in the crypto markets when retail investors are taking part and when they’re not can be starkly visualised on price charts. Here’s what crypto looks like when retail is buying in:

As we can see, every dip is bought, buy volume increases and there are several consecutive days of gains. This is because, when the market is frothy, more entrants are coming into the market. Holding is made easy as the influx of new money as prices are sent higher.

Now let’s look at what happenes when retail has left the market:

Here we can see the brutality of a bear market. Every pump is sold into, with experienced traders making money off the dwindling number of new entrants as they short the market at every opportunity. Volume in general absolutely dies as no new money is coming in. Without this new money it is just a case of existing money being recycled as professional traders try to outwit the few remaining stragglers and, eventually, each other.

Cost of Living Crisis Will Drag Out Accumulation

Put simply, prices do not rise until new money is coming in to freshen up what is being recycled. This is standard for any market at any time in history, and under normal circumstances we would be planning in terms of months for the bear market to transition into a neutral market.

However, as the saying goes, this time it’s different, because, right now, there is no money to be spared. The first timers who would normally be waiting on the sidelines (whether they know it yet or not) are struggling to heat and feed themselves and their families, so they have little interest in trying to pick the bottom of a crypto market. Were we at the start of a bull market as opposed to a bear market we might see more ill-advised risk taking, but the buy volumes would be much lower.

As it is however, with every penny being used for essentials to cope with a cost of living crisis many won’t have seen in their lifetimes, crypto markets are the last thing on anyone’s mind, and until those individuals that normally pile into a crypto market once the going starts to get good have free capital again, we can’t expect anything except a long, slow accumulation period, perhaps the longest we’ve yet seen.