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What comes to mind when you hear “crypto bear markets”? Does it remind you of trading the financial markets, or does it sound entirely new altogether? Learn about the bear market and some fundamental thoughts about it in this article.
What is A Bear Market All About?
A low ebb in crypto-economic activities especially buy orders, and a protracted decline in most cryptocurrencies marks the beginning of a crypto bear market or downtrend. The most prominent market actors in a bear market are the bears or sellers who profit from the downtrend by borrowing money to buy and reselling at a lower price to repay the loan.
Imagine borrowing 0.5 Bitcoin at $20,000 per Bitcoin and then paying back the same 0.5 Bitcoin or 0.56 Bitcoin with an interest of 0.06 Bitcoin when the price of Bitcoin is now $12,000. The seller or bear keeps $10,000 at the purchase price minus 0.56*$12,000 = $3,280. Buyers or bulls have little or occasional presence in a bear market; hence there are periodic pullbacks that are often fake signs of a returning uptrend.
Like normal economic circles where events move from depression to recovery and peak before repeating the process, bear markets are the crypto semblance of an economic recession. The downtrend is often sudden and violent to market participants except for highly skilled analysts who understand the times and act accordingly. Experienced traders often leave at the start of the bear market and come back at the bear market ending to avoid losses and maximize opportunities.
The events leading to a downtrend in crypto can be fundamental or technical, as you shall see shortly, but certain market activities and behaviors mark the bear market. First, developers spend a lot of time building and launching new products in preparation for the uptrend. Retail investors in traditional finance often come in to speculate, occasionally pushing the price of some tokens up.
Institutional investors put a lot of research into finding a clear trend and investment opportunities. When they see these opportunities, they start committing funds to upcoming projects in the area of anticipated opportunity. Let’s now look at the two biggest perspectives on the bear market.
The Bear Market Explained From a Fundamental Perspective
Fundamental analysis uses financial information to determine undervalued assets and make possible predictions about future prices. Fundamental analysis in crypto is based on the technology, the background of the team behind the project, and overall expectations from the market.
A bear market often starts fundamentally from a major player in the industry announcing a critical issue. The issue increases fear as many traders perceive crypto assets as overvalued, and sellers start outnumbering buyers, taking the price down with the news.
Popular bad news and critical issues in the past include liquidity crunches, a hack, accounting misconduct, or the exposure of shady activities involving one of the project’s founders. Any of these can quickly spread and lead to a complete downtrend depending on the company’s size. You can assess a potentially critical issue by checking the number of projects connected to the affected team and platform.
Another fundamental precursor of a bear market in crypto is whale activities. Some expert traders monitor whale activities using tools like Nansen and DeBank to watch what whales are doing and follow their lead.
Whales are individuals or institutions that own so much of a cryptocurrency or token that a sell or buy action by them can impact the market significantly. Institutional whales like Tesla have sold Bitcoin in the past leading to a huge downtrend immediately after the event. Simple news about massive institutional sales can tip off traders and cause a market collapse, marking a downtrend’s beginning. The impact of whale activities is less important than the critical events explained earlier.
The Bear Market Explained From a Technical Point of View
Technical analysis uses historical data to make objective decisions about the future prices of crypto assets. The idea was developed in Japan by early traders who became super profitable in the rice market.
Today, more advanced techniques have evolved, and a combination of some of these techniques often results in a predictable level of success in the market. Most technical analysts predict the cryptocurrency market based on the price movement in Bitcoin, the most popular cryptocurrency.
According to these analysts, the price of other assets is tethered around Bitcoin, which is why a change in the price of Bitcoin often leads to a corresponding change in the price of other cryptocurrencies. Going with these assumptions, it is possible to talk about a Bitcoin bear market as an overall crypto downtrend since crypto and Bitcoin are the same.
Technical analysts start their analysis with trendlines spanning days, weeks, months, or years, which they draw to find patterns in the chart. Some patterns are common and recognizable as historical precedents of downtrends in all markets. Other patterns reflect indecision and a neutral market situation.
Nevertheless, technical analysts believe a period of indecision is critical because the next move below or above this point could mark a trend continuation. Other critical indicators are the 200 and 50 days moving averages which could cross to form the death and golden cross. A death cross happens when the 50 MA crosses below the 200 MA, signaling the beginning of a downtrend.
An evening star in a longer timeframe, like the monthly timeframe, may also mark the beginning of a bear market. Evening starts are a sign that a massive selloff happened after a brief period of indecision. Overall, the longer the timeframe in technical analysis, the more powerful the indicator.
Build A Stable Bear Market Income With Decentralized Exchanges Like Pandora
The bear market is never the best time in crypto. Hackers often target centralized and decentralized platforms resulting in critical events, so you should steer clear as much as possible. You may succeed by analyzing technically and fundamentally, but that is only probable.
One great way to keep your portfolio afloat is to use an exchange like Pandora that offers rewards for transactions and stable investment opportunities to help you survive the downtrend. You can spare some of your funds and get started by investing in Pandora NFT Securities. Investors in Pandora Securities receive up to 12% APR and can take out their investments whenever they want.
Moving away from super stable investments, Pandora also offers farming, staking, and earning opportunities to users of the platform. In case you are just starting, you can do more on Pandora to qualify for bigger earning opportunities by using the platform and earning EXP through hashrate-eligible trades, DroidBots upgrades, NFT trading on PandoMarket, buying tickets, unlocking staking slots, and opening PandoBoxes.
No one knows where the market is headed with utter certainty, but some signs have held through all these years. Fundamental analysis and technical analysis are great ways to predict the market trend with some probability.
Mastering the art of sensing an upcoming bearish or bullish trend by combining fundamental and technical analysis is great. When you do, you will be better positioned to protect yourself from the overall impact of a downtrend.
Centralized platforms are failing at the moment, so it is advisable to use decentralized exchanges like Pandora for all your transactions and capitalize on the opportunities available to boost your overall portfolio. A bear market ending is always in sight during severe downtrends. Still, an investor must take proper caution and analyze thoroughly using fundamental and technical analysis to arrive at a more probable result.
These materials are for general information purposes only. They are not investment advice, a recommendation, or solicitation to buy, sell, or hold any digital asset or engage in any specific trading strategy. Some crypto products and markets are unregulated, and you may not be protected by government compensation and/or regulatory protection schemes. The unpredictable nature of the crypto asset markets can lead to loss of funds. Tax may be payable on any return and/or on any increase in the value of your crypto assets, and you should seek independent advice on your taxation position.
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