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How to Know Whether We’re in a Bull or Bear Crypto Market

bull or bear market bitcoin

All markets swing between bullish and bearish periods. For example, from January 2017 – January 2018 the total cryptocurrency market capitalization increased from $15 billion USD to $700 billion USD. This was clearly a bullish market period as there was substantial growth (higher than national inflation rate) during a short period of time.

However, between January 2018 to January 2019 the total cryptocurrency market cap fell from $700 billion USD to $91 billion USD. In only a year the cryptocurrency market cap fell by 87%. This was certainly a bearish time for the cryptocurrency market.

bullish vs bearish market
Figure one – cryptocurrency market capitalization changes

With such vast swings occurring in the cryptocurrency market, it is important that we can recognize two things. Firstly we must be able to recognize whether we are in a bull or bear market. Secondly, through education ourselves we can increase our ability to recognize market troughs and tops. Through increased recognition of these two factors, we can increase our likelihood of portfolio valuation increases.

Lets start off with the first factor – determining whether a market is bullish or bearish.

What is a bear market in crypto?

Bear markets refer to a period of time during which investors focus on long term negative price movement. When bear markets occur, cryptocurrencies tend to lose significant value over extended periods of time. The most infamous bear market seen in crypto was 2018. During 2018 many cryptocurrencies lost over 90% of their value in less than a year.

What is a crypto bull market?

During bull markets investors focus on long term positive price movement. Positive emotions surround the market as investors’ portfolios often see extended periods of increased value. Cryptocurrencies see substantial market capitalization increase as increased demand from numerous investor types look to buy cryptocurrencies. This results in major positive price movements in the crypto markets.

How can we determine whether we are in a bullish or bearish market?

Indicators

The first way analysts can determine whether a market is bullish or bearish, is through the use of indicators. There are many indicators which can be used on high time frames in order to help determine whether a market is bullish or bearish such as:

One of the most widely used indicator mixes for determining whether a market is bullish or bearish is the combination of the 50 day MA and 200 day MA. When the 50 MA and 200 MA cross, either a golden cross or death cross are created.

Golden cross

The golden cross occurs when the 50 day MA crosses above the 200 day MA. This crossover represents a bullish long term momentum change. From this momentum change, a substantial bullish rally typically occurs. Therefore, if a golden cross occurs and the 50 day MA is above the 200 day MA, the cryptocurrency market is bullish.

bearish market-btc-usd-coinbase
Figure two – golden cross example 2019

Death cross

Death crosses are the opposite of golden crosses. This is when the 50 day MA falls below the 200 day MA. Once the death cross occurs, the market is traditionally viewed as bearish.

btc-usd-coinbase death cross-crypto-chart
Figure three – death cross

Death / golden cross conclusion

Through mapping out all golden and death crosses, we can get an overall picture as to whether the market is bearish or bullish.

bullish vs bearish market -death and golden crosses
Figure five – overall cryptocurrency market bullish / bearish runs through the lens of death and golden crosses

This mapping does give us a relatively accurate judgement of market sentiment. However, the issue with these crosses is that they are heavily lagging indicators. This means that the tops and bottoms of markets are missed. We will further look into selling tops and bottoms / spotting the market sentiment flip early later…

On-chain indicators

On-chain analysis uses data from the Bitcoin blockchain in order to create new indicators. Traditional indicators are typically some form of equation with the input being price data. However, on-chain indicators are something unseen before, as these are not possible in the stock / forex / commodities markets (they have no blockchain). The top two indicators for determining whether the market is bullish or bearish are the Puell Multiple and the Bitcoin RHODL ratio.

Learn more about the Bitcoin RHODL ratio.

Learn more about the Puell Multiple.

On-chain indicators conclusion

Wide usage of on-chain indicators is a relatively new phenomenon within the cryptocurrency world. If they manage to catch the current 2021 bull run top, on-chain indicators could slowly erode the popularity of traditional cryptocurrency market analysis. They are something to keep your eye on as you wonder whether we are bullish / bearish and our position within the current run.

Bull or bear market conclusion

There are numerous ways to determine whether the market is currently bullish or bearish. The most widely recognised method is through using bullish and bearish death / golden crosses. As mentioned earlier death and golden crosses lag significantly. Let’s take a look at factors which can point towards the end of a bull or bear market.

Selling the top / buying the bottom

Introduction

During the 2018 bear market, many investors across the board saw significant portfolio devaluation. Most altcoins lost over 90% of their value during this time, while many have still not reached ATHs set in 2017/18 despite significant market inroads.

Additionally numerous cryptocurrencies simply could not further their projects due to market conditions and effectively folded. For example, Universa held their ICO in 2017 amassing $28 million USD. Fast forward nine months from the ICO and UTNP had fallen 95% in value, with the project in tatters.

UTNP crypto price chart
Figure six – UTNP price chart*

Note – UTNP is now classed as a dead cryptocurrency project

Why did the market lose significant value during 2018?

The reason why the cryptocurrency market lost significant value during 2018 was due to the market being overheated.

Overheated market definition = when a market expands at an unsustainable rate, often resulting in the market being referred to as a `bubble`.

Although the majority of investors and traders were caught out by the 2018 drop, some escaped due to noticing evolving market dangers… This is because there are numerous ways one can tell if the market is flipping from bearish to bullish or vice-versa.

Events / things which point towards the end of a bull market

Listen to your taxi driver

It is an old market saying that once your taxi driver starts giving you investment tips, it is time to sell. This is because your taxi driver giving you investment advice, likely implies that there is wide public knowledge and euphoria surrounding your market. Taxi drivers giving advice implies that the market is within the late mania phase. This phase is when everyone is greedy, wanting in on the substantial returns seen earlier in the market.

After the mania phase markets see the blow off phase, wide spread capitulation taking place. This is why when your taxi driver says to buy, it is time to sell. 

BTC from 2016-2019 market analysis
Figure seven – market psychology on BTC 2016 – 2019

ICOs

During the 2017 / 2018 bull run, there were numerous ICOs, all promising to revolutionise various industries. The size and regularity of ICO occurrence was ever increasing during this bull run. For example the XTZ ICO managed to raise $250 million USD… However the ICO gold rush marked the end of the 2017 / 2018 bull run with many projects now either defunct or -90% from 2017 / 2018 ATHs.

tezos
Figure eight – Tezos had a $250,000,000 USD ICO.

This ICO madness during 2017 was thought to be an anomaly. However, during the current 2021 bull run, there has been a significant amount of ICOs, most of which have had their hard cap hit. As the bull run has continued, the amount of ICOs which have been oversubscribed has been on the rise. For example, RAZE held their ICO at the current bull run peak, when BTC was around the $64,000 USD mark. Demand for ICO was so high that RAZE was X88 oversubscribed.

Within the coming week, BTC fell from $64,000 USD to $47,000 USD with a death cross occurring shortly afterwards.

Why was demand so high?

From a psychological standpoint, many within the cryptocurrency industry were euphoric and greedy. This was due to many altcoins increasing x>+500% from March 2020 to April 2021 greed and FOMO was strife. Therefore, in an attempt to catch onto the next big thing, many within the industry rushed towards this ICO.

ICOs bull run top conclusion

Until significant regulation is introduced surrounding the ICO area, it is unlikely that significant demand for ICOs towards the end of bull runs will end. Therefore, if you see that ICOs are monumentally oversubscribed and demand significant capital; history suggests that the market could be about to flip bearish…

What points towards the end of a bear run?

The end of bear runs are significantly harder to predict than the end of bullish runs. Attempting to catch the bottoms of a bearish cryptocurrency run is often associated with trying to catch a falling knife… For example during 2018, few within the industry predicted the almost total collapse which occurred as the market lost over 85% of its value in less than a year.

Traders attempt to mitigate falling knife risk through dollar cost averaging (D.C.A) during death cross periods.

Events / things which point towards the end of a bull market conclusion

In conclusion, using a mixture of market psychology evaluation, on-chain indicators and traditional indicators (if executed correctly) is financially beneficial to cryptocurrency HOLDers and traders. Factors mentioned can increase user likelihood of selling closer to the top and understanding when we are in a bull or bear run.

Conclusion

In conclusion, it`s relatively easy to understand whether we are in a bull or bear market. However, understanding what stage within the bullish or bearish period we are in is much harder. The methods evaluated in this article are commonly viewed as effective ways to understand whether we are in a bull or bear market.

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