Since almost the beginning of 2022, the crypto space has been experiencing bearish sentiments. This came crashing tenfold when the Terra LUNA crash took place, following the whole crypto market entering a bear run which the community is calling the ‘crypto winter’.
According to a Bitcoinist report, “Investor sentiment in the crypto market has been on the decline since the bitcoin crash in June but had begun to see some uptick once the price began to stabilize. That is until another dip sent the price of bitcoin back below $20,000 and has once more triggered fear in investors. The Fear & Greed Index which had been recording some recovery in the sentiment has seen its reading plunge deep into the red once more.”
However, according to the Fear and Greed Index report about last week’s investor sentiments, they have now moved out of the extreme fear territory. Following the report, the next week’s market opened to Bitcoin’s value dropping below the $22,000 mark but was within the $21,000 value range. It was expected that this would be where the digital asset made a stand against the bills. However, with low momentum going into the new week, it had quickly declined and that fall below $20,000 had taken the once-improving investor sentiment down with it.
As of the time of this writing, the Fear & Greed Index is sitting in extreme fear with a score of 16. It is down 6 points from the previous day’s score of 22 which had brought it close to leaving the extreme fear territory. This decline back into fear has triggered extreme wariness and drastically dropped the risk level of investors in the space.
The crypto market has been having a slow couple of months since almost the beginning of 2022? Yes, there are many reasons why a bear market takes place in volatile asset classes, however, they are not new.
Additional Read: Crypto Crash Reason
TOP BEAR MARKET INDICATORS
In simple words, a bear market is when the assets had a steady decline in their value for a certain amount of time. This can be due to several reasons like when the supply of an asset is typically higher than the demand because a large chunk of investors or crypto whales starts to sell their loss-making assets from their portfolio fearing further price drops. Here are the other indicators that cumulatively result in a bear market.
- When the Economy is Unstable: The bear market is often related to the economic scenario of the world. When the unemployment rate is high and there is a visible decline in GDPs, it affects the investing assets’ values as well. The current pandemic situation along with government interventions also cater towards triggering a bear market.
- Business Profitability: The economic decline also affects businesses. This period often sees layoffs and budget cuts along with a decline in corporate profits. The tight monetary space that this creates to being another significant indicator of the bear market.
- Investor Sentiment: The weak economy and low-profit rates eventually decrease the interest of investors in various investments, thus resulting in them selling their assets. A certain amount of time with this continuous behavior would lead to a consensus that the market has stopped growing and will probably not revert any time soon. More and more investors would stop buying, or move their money to less volatile assets.
PHASES OF A CRYPTO BEAR MARKET
Crypto markets, in general, are a very novel space with not a lot of history. However, here’s how bear markets in traditional financial markets tend to work.
Bear markets typically consist of four distinct stages:
- High prices characterize the first phase. After this period, investors begin to exit the markets and collect gains.
- In the second phase, asset prices and trading activity decline, company earnings decline, and previously optimistic economic indicators deteriorate. As the mood begins to deteriorate, some investors experience fear, a condition known as capitulation.
- The third phase is when speculators join the market, increasing prices and trade volume.
- Crypto continued to fall in the fourth and final phase, albeit slower. As lower prices and optimistic news re-attract investors, bear markets eventually transition into bull markets.
Read more in detail on Top Crypto Bear Market Indicators
Will Crypto Recover?
The bear and bull phases are a cumulative result of the whole world economy as a whole. While there are many factors like the pandemic, the 1% TDS and the 30% tax on crypto profits, which plays into affecting the markets of volatile assets. However, there is no calculation that causes the sessions. The crypto markets will be a portrayal of the crypto investor sentiments. Since this is still a newer asset class, the volatility rate of the space is also higher than the other known asset classes. It is advisable to do your own research while exploring various crypto options.
Additional Read: How to Survive a Bear Market?