Many people hear ‘bear market’ and immediately think of red charts, memes of the Titanic sinking, and a general sense of despair and misery. It’s one of those phrases that gets thrown around so much in the cryptocurrency sphere that the real meaning tends to get lost. That’s understandable! It can certainly be disheartening to see the value of your portfolio tank and watch Bitcoin struggle to stay above prices today that it left in the dust three or four months ago. Theories about what triggered the recent decline abound throughout the web, and range from “burst bubble” to “vast conspiracy” to everything in between. Before we try to diagnose the reasoning behind the recent downturn, however, it is important to understand exactly what a bear market really is.
Within the world of traditional trading and trend analysis, there are various terms and techniques that people have developed over the years. Many of these same concepts and methods are also used to talk about and interpret Bitcoin markets, albeit to varying degrees of success. When it comes to analysing markets of any kind, however, there are a number of different factors to consider. First and foremost is time scale: are we looking at a 5-minute chart or a 5-week chart? Are we looking at behaviour over the course of minutes, days, weeks, months, or year?
The Importance of Time
Different time frames have different implications, and will be more or less relevant depending on a traders position and what kind of trade they want to make. For example, a day trader will likely look more closely at 5-minute or 15-minute charts, watching for signals and getting in and out of trades quickly throughout the day. It is important to understand, however, that a bearish indicator on an intraday chart does not imply a bear market.
As opposed to day traders, longer term investors will be more likely to look at the bigger picture, analysing market behaviour over months or years to look at the overall direction of the market – they’ll try to identify whether it is trending up or down. A bear market refers to this bigger picture – a continuous downward trend over a period of weeks or months. How long specifically? It depends who you ask. Within any given day, there are fluctuations – prices move up and down constantly. Even if there are peaks and dips within hourly and daily charts, when closing prices are consistently trending downward over time, we have a bear market. It is safe to say, at this point, looking at Bitcoin’s behavior from mid-January to today, that we’re in a bear market.
Beating the Bear: The Long Term Outlook
For savvy traders who are comfortable taking short positions on Bitcoin futures, a bear market can be a tremendous opportunity to make money. For many casual investors and long term holders, however, retracing down to prices unseen for months can really test one’s resolve. It can be tempting to panic and sell at a loss in order to prevent losing even more. The media rhetoric about burst crypto bubbles and the death of Bitcoin can start sounding more and more reasonable, while all that stuff about the “blockchain revolution” that sounded so promising when prices soared can begin to feel like hot air. Meanwhile, the only thing that has changed about Bitcoin is the price.
Regardless of the shift from a bullish trend to a bear market, the technology behind Bitcoin remains exactly the same. Rapid growth over a short period of time is generally not sustainable in any system. Too many bunnies in a meadow will run out of grass. The same is true in financial markets. Assets can become oversold. Despite the immediate environment or poor sentiment and low volume typical of a bear market, we are continuing to see widespread interest in Bitcoin and integration of cryptocurrency into the mainstream, including the recent spotlight on crypto at the 2018 G20 Summit. It is safe to say that Bitcoin and blockchain technology are not going away, but in order for mainstream adoption to really succeed we need to see steady adoption of the technology, not rapid speculation on the price. How long will the bear market last? Who knows, but not forever.