Is Bitcoin in a Bear Market?
The bitcoin price has taken a serious knock in recent weeks, shedding more than half of its dollar value. Are we now in a bitcoin bear market? Or, is this ‘normal’ bull market price action for the world’s most volatile asset class?
What happened to bitcoin?
On 14 April 2021, bitcoin broke $65,000 for the first time. But just over one month later, on 19 May, its price dipped below $30,000. From top to bottom, this was about a 54% correction.
There are many reasons why the drop happened. Take your pick:
- Bitcoin was is a ‘Wyckoff distribution’ topping pattern.
- Institutional investor concern about the environmental impact of bitcoin mining (which I believe are misplaced).
- Elon Musk tweets.
- Altcoin mania.
- Mainstream media FUD and market manipulation by whales (funny that it is never manipulation on the way up).
- More sellers than buyers (my theory).
Comparing similar bitcoin price drops:
Scrolling through crypto Twitter, we can see the usual sentiment: this is just a bullish dump. This is ‘normal’ in a bitcoin bull market.
But is it normal? Or have these types of price declines historically brought the bitcoin bears out of lockdown?
To answer this question, we need to study similar bitcoin price corrections. Some of these have resulted in a bitcoin bear market, others have not.
1. Corona crash March 2020:
Let’s start with the Corona dump of March 2020. Here, the bitcoin price crashed over 60% from its highs in about a month.
As the above image shows us, the Corona crash took place over a similar frame and was a similar magnitude to the current crash. After this capitulation, bitcoin went on a spectacular run.
With that being said, the market was in a very different place at that point in time. Bitcoin had just come out of a major bear market, and global stock markets were in freefall. Yet with the current crash, stock markets are at record highs and bitcoin has been rising parabolically.
Therefore, I would not use this as a fair comparison.
2. Bitcoin bear market capitulation (November 2018):
From November 2018 until December 2018, bitcoin had a savage correction. This was followed by a major rally of about 300% to the upside, which ended in June 2019.
Again, market conditions were very different at this time, as the crash occurred during a major crypto bear market.
3. Bitcoin blow-off top December 2017:
Below we compare the current price decline with that of December 2017. This took about the same amount of time, was of the same magnitude, and happened in a previously bullish market.
We all know what happened next…
4. Bullish dumps in 2017 bull market:
Leading up to the final washout of December 2017, we saw several bitcoin price corrections that were followed by strong rallies. However, none of these were as large as the most recent bitcoin dump.
It is also worth noting that prior to 2014 we had several major corrections that were, in some cases, even larger than any of the above. However, bitcoin was a much smaller market size back then. Therefore, I would not personally use these as base comparisons.
Overall, we can see that the December 2017 drop was the most similar to the one we have today. Based on this alone, I would be more inclined to say that we are entering into a bear market. However, there are other factors we need to consider before comparing this to the 2017 debacle:
- Bitcoin is far more leveraged today than it was in 2017. Therefore, the drops can be sharper and faster as a result of mass liquidations.
- Bitcoin is being adopted far more by large institutional investors than it was in 2017.
- Large investors now have a much better understanding of bitcoin as an asset class. It is no longer just ‘magic internet money’.
Does the current price chart suggest a bitcoin bear market?
From a strictly technical standpoint, bitcoin is not yet in a macro bear market. This is because it has not yet put in a ‘lower low’ on the weekly price chart.
And even though it has had an over 50% correction, it also needs to put in a ‘lower high’ on the weekly price chart to then confirm the downtrend.
The good news is that bitcoin has not done either of these yet. The bad news is:
- The last weekly high for bitcoin was at around $58,000. That’s 90% above where we are right now.
- The last weekly low for bitcoin was at about $32,000. That’s only 10% down from here.
The above chart makes it quite easy to decide if/when we officially enter bear market territory. However, $58,000 is a long way up to determine whether the bull market is still on!
So, what else could make us more bullish?
As discussed in a post last week, the bitcoin hash ribbons buy signal would need to flash ‘blue’. To do this, the 10-day moving average needs to cross above the 20-day moving average. Bitcoin mining activity also needs to hold steady until then.
As shown in the chart below, this could take some time.
It is impossible to forecast what bitcoin will do next. And you should be wary of the ‘gurus’ who tell you otherwise.
In my view, the longer bitcoin consolidates around the lows and builds a base, the better it could potentially be for the bulls. As of right now, we seem to be doing just that. Bitcoin is in a very large price range until proven otherwise.
Regardless of whether we enter into a bear market or not, this dip should not bother long-term investors who still believe in the fundamentals of bitcoin. And shorter-term traders should be excited by it.