Are Cryptocurrencies in a Bear market?

The crypto market saw a sharp correction in recent weeks and we’ve seen a large number of people calling this a bear market. Let’s break it down.

Defining a Bear Market

In order to come to a conclusion on whether we are in a bear market or not, we first have to define what a bear market is. A bear market is never as clear cut as the loss of a certain price level, or a particular percentage drop from the highest price point of an asset — especially in crypto.

In traditional markets, a general indication of a bear market is when an index drops 20% over a period of 2 months.

However, this is not the case for crypto due to its volatility; 20%+ movements over a week are relatively normal in crypto. This disqualifies this metric as an indicator of a bear market. Looking over the short history of crypto prices and the general public consensus, the term bear market generally represents a prolonged period greater than a year with a very large drawdown from the top (80%+). Let’s go over some stats first.

The Bitcoin Case

Observing recent price action we can see that BTC has had a 55% drawdown from peak to trough and is now in a consolidation range between $30,000 and $40,000.

As of the 28th of June, we are now 472 days into this bull run, and BTC reached the local peak 397 days from the March 2020 bottom. On average, previous bull-runs lasted around 900 days.

Let’s take a look at another aspect which we believe to be even more interesting: percentage profit from top to top of each bull-run.

Bitcoin has had 3 substantial bull runs since its genesis; this chart shows the time between the peak of each run and the percentage gain of the next one.

Granted, Bitcoin’s volatility will only keep going down over time as more money flows into this market; and that is the reason its price saw a +3,590% gain from the 2011 to 2013 peak but only +1,578% from the 2013 to 2017 peak. However, a +230% gain seems very shallow to even consider this peak bull-run form in our opinion.

The Ether Case

We can’t talk about the health of the crypto market without talking about altcoins. ETH is to DeFi what the dollar is to the world economy. ETH has had a slightly larger drawdown than BTC, losing 61% from the local peak in May 2021. This is usually given the smaller market capitalization and overall volumes trading ETH — they lead to higher volatility. While not a perfect metric by any means nor it is a way to quantify tops, let’s compare the 2017 cycle to this one.

The first thing this chart should induce is perspective and the realization of how far we’ve come — even compared to three-digit ETH.

The second aspect is a pairing between both fundamentals and technicals. Prices grew by 25,000%+ during the 2017 run while Ethereum wasn’t used but only 5,000% (yes ironic to say only followed by 5,000%) when Ethereum is a settlement layer storing over $50 Billion in value? Something seems odd if we consider a bear market now.

The Fundamentals

Let’s get down to basics and cover the fundamental aspects that most ignore.

The kind of institutional involvement and growth of the hedge against inflation narrative that we have seen over the last year or so on Bitcoin, coupled with the endless printing of dollars, it just isn’t realistic for us to deduce that the top for this bull run is in. Over a fifth of all US Dollars in existence were printed in the last 18 months and Bitcoin has become a digital Store of Value (SoV) — digital gold, and there’s still significant capital on the sidelines from institutions that are yet to enter this market. The other point to consider is that recent selling was mainly done by recent acquirers of BTC, not long-term holders with a vision.

Additionally, El Salvador has recently recognized BTC as an official currency. This isn’t really a strong fundamental case, however, it is a way to get the foot in the door. We believe that this will be seen as an experiment for many countries with inflation concerns which may lead to a domino effect.

Microstrategy and Tesla are the two best-known and widely talked about corporations that have invested in BTC. Again, a couple of large companies investing in crypto is by no means a huge fundamental case. But just like El Salvador, these early institutional investors have opened the door to the possibility of BTC becoming an asset that large corporations will hold on their balance sheets.

Let’s get to Ether. The bull thesis for ETH has not changed and in fact, has grown stronger over the last year. EIP-1559 is set for main net launch in July and ETH2.0 in the coming 6–12 months will completely change the economic model of ETH, we believe many underestimate these factors. Truth be told, ETH has grown in price on a non-existent economic model (or at least a very poor one), imagine what can happen once these are implemented. In addition, Ethereum is becoming a global settlement layer for financial transactions through the novel DeFi sector.

Ethereum isn’t the only chain where there has been substantial DeFi development — Solana has been one of the best performing mid-cap assets throughout the whole correction. Although SOL hasn’t been around long, the demand is substantial and this is reflective of the rapid growth of DeFi in the Solana ecosystem.

There’s still a long way to go, but there’s no denying that this market has reached the status of “a force to be reckoned with”.

TLDR: The fundamentals are stronger than ever and the stage is set for crypto to grow.

Final Word

To answer the original question — are we in a bear market?

We do not believe so. The bull case for not only Bitcoin but crypto, in general, is too huge to ignore.

Taking into account everything mentioned in this report, we have to ask the question — does this look like the end of a bull run or the start of a new one?