Different phases of the crypto bear market and market choices

Data shows that the stock markets of 19 countries and regions, which account for 40% of the MSCI representative index composed of global stocks, have fallen by more than 20% from their recent highs. The MSCI All Country World Index (ACWI, calculated in local currency), which targets 47 major countries, fell to 702.8 points as of June 17. It has fallen 20.7% from the recent high on January 4, and has entered a bear market. This is the first time it has entered a bear market in two years and two months since April 2020, when the COVID-19 pandemic began. According to data from QUICK FactSet, the global total market value has evaporated by about $25 trillion since the beginning of this year. At the same time, the crypto market has also collapsed, BTC's dominance is declining, and most altcoins have depreciated by 90%.

Different situations have led to various crypto bear markets. The early Bitcoin bear market was due to doubts about the security of blockchain technology. Many people believed that any hack in the crypto ecosystem was a hack of the blockchain. Now the market has generally moved beyond whether blockchain technology is secure or not, as it has been proven to be secure over time.

Currently, Bitcoin and other cryptocurrencies built on the blockchain follow the global economy. Stock markets and crypto markets now have similar trends. For example, the 2020 cryptocurrency and stock market crash was caused by fears about the spread of the coronavirus and the possibility of a recession due to the global economic paralysis brought about by the lockdown.

There are many political connotations to the reasons for the bear market in 2022. Wars, high inflation, and some government policies are the reasons for the current market crash.

The downturn is more due to macro factors than to inherent market weakness.

Although the cryptocurrency market has similar trends to the stock market and goes through similar phases, different phases of the crypto bear market also produce different characteristics.

The first stage of crypto bears: This comes immediately after the bull run. In this stage, you feel the shock of the market but don’t believe what will happen because the excitement of the bull run is still there. Many people think that this is just a price correction and the price relay will resume soon. The media is still pushing strong fundamentals, there are no glitches in the operations of startups, and there are no major shocks in the ecosystem.

Phase 2 of the Crypto Bears: Things get worse here. The media pushes doomsday narratives and nothing seems to be working. You'll see prices of some cryptocurrencies drop by 90%. Also, events like the Luna Terra collapse will occur. Startups will stop product development, lay off employees, and struggle. From what we can see right now, the market is in phase 2 of the bear market, and there's more to come. This means things will get worse as the market moves forward.

The third and final stage: This stage is the most severe torture. Many people will want to sell the cryptocurrencies in their portfolio, turn off their computers/phones, and leave. By this time, the media will be silent. Startups will close. This is the most difficult stage in the bear market. After this stage, the bears will start to lose strength and the bulls will gradually return, but the pain during this period will make many people leave.

At the current stage, the market is in a state of panic and selling, as well as confidence and accumulation. Different investors are making different choices based on their tolerance for investment risks.

As for the base layer miners, the JPMorgan strategy team led by Nikolaos Panigirtzoglou recently released a report stating that if the profitability of Bitcoin miners fails to improve, they will choose to continue to sell Bitcoin in order to meet ongoing costs or deleverage, and this situation may continue until the third quarter of this year. At present, pressures such as soaring global electricity costs and the overall decline in the crypto market are hitting the profitability of crypto mining companies. Miners are trying to increase profits by cutting costs and selling some Bitcoin. In addition, Bitcoin miners are also facing tremendous pressure from creditors and other counterparties. Miners who obtain funds through highly leveraged loans may even trigger a larger chain reaction, leading to the bankruptcy of cryptocurrency lending service providers and hedge fund companies.

As for crypto whales, Glassnode analysis agency reported that the number of BTC addresses holding 10,000 Bitcoins has soared to 100. At press time, 10,000 BTC is worth $213,313,000 based on the exchange rate between Bitcoin and the US dollar. Meanwhile, whales have been actively buying Bitcoin as the number of wallets holding 10 to 10,000 Bitcoins has surged in the past two weeks. As for addresses containing 10,000 BTC and above, their number has increased since February this year.

In terms of investment product development, market expectations are low for the SEC to approve two upcoming spot Bitcoin ETF (Exchange Traded Fund) applications, which initially provided some optimism since Teucrium's futures-based product was approved, but has now faded. The two applications currently on investors' radar are the Bitwise Bitcoin ETP Trust, with a decision deadline of June 29 for the former and July 6 for the latter. Bloomberg ETF analyst James Seyffart said he believes approval of either application is highly unlikely, and the SEC has made it clear what it wants to see before giving the green light to spot Bitcoin products. The SEC will not approve a spot Bitcoin ETF until a sizable market has a supervisory sharing agreement or is regulated by an agency such as the SEC or CFTC. Therefore, the SEC will not approve a spot Bitcoin ETF until a spot Bitcoin exchange, or potentially multiple spot Bitcoin exchanges, come under the jurisdiction of the SEC and/or the CFTC.

In terms of market sentiment, Bitfinex released a report stating that like many stocks, Bitcoin is also a high-risk asset. Therefore, investors reducing portfolio risk also means selling Bitcoin. Bitcoin has soared to its highest level in a bullish economic situation, and is expected to fall sharply in a bearish macro environment.

When it comes to different individuals, the choices are diverse. A British MP said that the sell-off in the crypto market has not shaken his confidence in the industry. The CEO of Qatar Wealth Fund said he is not interested in investing in cryptocurrencies, although he believes in the underlying blockchain technology. The co-founder of Mobius Capital Partners said that confidence will only reach its lowest point when institutional and retail investors really "surrender and admit defeat" and stop investing money in the market because of losses. This is also the time to start buying stocks. As long as Bitcoin investors are still talking about buying on dips, it means that they still have a glimmer of hope, which also means that the bottom of the bear market has not yet been reached.

However, an optimistic view is that the arrival of the crypto bear market, although it will damage users' investment portfolios to a certain extent, will also repair unnecessary noise and allow the market to usher in newer developments.