How long will the bear market last? Signs to watch for a crypto market reversal

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The current crypto bear market caused panic, fear and uncertainty among investors. The dire situation began when the global crypto market capitalization fell below the $2 trillion mark in January 2022. Since then, the price of Bitcoin (BTC) has fallen by more than 70% from its all-time high of $69,044.77, reached on November 10, 2021. Likewise, the values ​​of other major cryptocurrencies such as Ether (ETH), Solana (FLOOR), Avalanche (AVAX) and Dogecoin (DOGE) decreased by about 90%.

So, does history tell us when the bear market will end? Let’s start by looking at the causes of the 2022 bear market.

2022 Bear Market Catalysts

There are several factors that have caused the bear’s current run.

First, the rise of the bear market began in 2021. During this period, many regulators threatened to introduce strict laws governing cryptocurrencies. This created fear and uncertainty in the market. For example, the United States Securities and Exchange Commission (SEC) issued a lawsuit against Ripple. China banned Bitcoin mining, which forced most of its BTC miners to move to other countries.

A global rise in inflation and rising interest rates have sown fear and uncertainty in the market, leading to lower than expected crypto investments. Although there is a lot of publicity about inflation and interest rates in the United States, other countries like India have experienced similar challenges.

Notably, earlier this year the Federal Reserve announced that it take strict measures to “accelerate the reduction of monthly bond purchases”. In other words, the United States planned to introduce measures that slow down its economy to control the ever-increasing inflation in the country. The following chart shows the inflation trend from 2016 to 2022.

FRED consumer price index. Source: St. Louis Fed

Indeed, to reduce the rate of inflation, the Federal Reserve raised the federal funds rate twice during the year. This has reduced the disposable income of US residents, thus hampering the effort to invest in risky assets like cryptocurrencies.

Interest rates in the United States. Source: St. Louis Fed

Crypto analysts believe that leverage was another main cause of the current bear market. Leverage involves pledging a small amount of money as collateral to borrow a large amount of money to invest. In this case, investors borrow from stock exchanges to finance their investments in the market.

The downside of leverage is that once the price of an asset starts to fall, the trading positions will liquidate, leading to a cascading fall in cryptocurrency prices. This weakens investor confidence and tends to sow fear and uncertainty in the market.

While traditional markets have circuit breakers and protections, the crypto market does not. Take, for example, the recent collapse of Terra Luna – formerly known as Terra Classic (LUC) – and its stablecoin UST. During the same period, several other crypto companies such as Celsius and Three Arrows Capital and Voyager Capital filed for bankruptcy.

Signs the bear market is coming to an end

Analysts study market cycles to predict when a bear market will end. Typically, market cycles consist of four phases: accumulation, markup, distribution, and markdown. For Bitcoin, the market cycle takes place over four years or 1,275 days. The last phase is usually the bear market.

Bitcoin market cycles. Source: Grayscale

According to Grayscale, the crypto bear market begins when the realized price of Bitcoin exceeds its market price. Grayscale defines realized price as:

“The sum of all assets at their purchase price or realized market capitalization, divided by the market capitalization of the asset, which provides a measure of the number of positions in or out of profit.”

The realized price of BTC exceeded the market price on June 13, 2022. The chart below shows the prices of Bitcoin when its market price was higher than the realized one.

Price realized by BTC compared to the market price. Source: Grayscale

Interestingly, as of July 12, the cycle had completed 1,198 days. Since the entire cycle takes 1,725, this means that on that date, there were four months left before the realized price would rise above the BTC market price.

However, at the end of the four months, Bitcoin would need another 222 days to reach its previous all-time high. This means that from July, it would take a total of five to six months for the bear market to end. The chart summarizes the expected trajectory of the current crypto cycle.

The 2020 bear and bull market cycle. Source: Grayscale

If the current market cycle takes on a similar structure to the cycles of 2012 and 2016, and if Grayscale’s conclusions are correct, then the bear market could end between November 2022 and December 2022.

Related: Why is the crypto market down today?

How Long Bitcoin Traders Expect the Bear Market to Last

Bitcoin maximalists tend to view the Bitcoin halving as an indicator to predict the next bull run. Looking at history, Bitcoin formed a peak within 18 months of every bitcoin block reward halving.

History of Bitcoin Halving. Source: swyftx

In the past, the Bitcoin halving preceded the last crypto bull run, as shown in the chart above. Thus, BTC highs that support the halving schedule have a direct impact on the bullish or bearish nature of bitcoinmay be correct.

Bitcoin and S&P 500 correlation chart on October 20, 2022. Source: TradingView

The 2022 bear market is unique for several reasons. First, key macroeconomic variables such as high interest rates and runaway inflation increased its impact. Additionally, the Terra Luna crash and high leverage across the crypto ecosystem contributed to the start of a bear run.

Remarkably, this is the first bear market where there is a correlation between the exchange and Bitcoin, with a correlation rate of over 0.6 in July 2022, according to Coin Metrics data. Next, this is the first time the value of BTC has fallen below the peak of the previous cycle. Against this background, the value of BTC fell below $17,600.

BTC and S&P 500 correlation rate. Source: Parts Metrics

The contrasting situations between the 2021 crypto bull run and the 2022 bear market have baffled crypto investors. Analysts estimate that the current bear market will end between November and December 2022, with a possible rise expected from late 2024 to early 2025.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

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