Since last November the crypto market has been in a slow decline. As a result, most coins and tokens have lost all of their 2021 gains and Terra’s recent collapse chucked a whole bucket of fuel on the fire. With so much uncertainty inside and outside the crypto market, it’s probable that more pain lies ahead.
This of course has many wondering when this brutal bear market will end. So today I’m going to examine the current state of the crypto market, analyze the different dimensions of the crypto market cycle, and assess when the bull market could come back and how high crypto could go in the long term.
All we can do is use current information to forecast what could be next for the crypto market and that forecast could change as additional information comes to light. So with that said the first step to forecasting what comes next for the crypto market is figuring out where it is now.
Current Market Phase (Crypto Bear Market)
Although it’s almost certain that crypto is in a bear market the fact of the matter is that this is still debatable. That’s because there isn’t a clear definition of what a crypto bear market actually is. For reference, a 20% drawdown from all-time highs is the bear market benchmark for stocks.
Obviously, if we applied the same benchmark to cryptocurrencies, many, if not most, would be in a bear market every other week. Even during what is otherwise a clear crypto bull market a more logical bear market benchmark for cryptocurrency would be the long-term price trend specifically lower lows in price and especially for BTC.
That’s because altcoins are heavily correlated to Bitcoin. The problem with that benchmark is that we’ve seen the crypto market suddenly resume a bullish trend after BTC made multiple lower lows, most notably last May.
In the months that followed, almost every altcoin went on to make new all-time highs as well as Bitcoin. You don’t want to be on the wrong side of that kind of price action. Today the crypto market is in a similar position with BTC hitting a lower low for the first time since last May.
Does this mean we could see the same reversal? Well, maybe but there are some objectively bearish macro factors at play that will likely prevent most coins and tokens from hitting new all-time highs. As such it’s safe to assume that we have officially entered a crypto bear market and I personally believe that bear market was precipitated by TERRA coin crash.
Anyways assuming the crypto bear market has in fact begun we can use previous crypto market cycles to estimate roughly when it will end and when a new bull market will begin. As many of you will know the crypto market seems to follow a four-year cycle and that’s because of bitcoin’s halving schedule.
The bitcoin halving is when the number of BTC awarded to miners in each bitcoin block is cut in half and this happens roughly every four years. As basic economics dictates if the supply of something is restricted and demand for it stays the same or increases then its price rises. This is why BTC tends to appreciate at price after every bitcoin halving and because most altcoins are highly correlated to Bitcoin they tend to come along for the ride.
The last bitcoin halving happened in May 2020 and in the months that followed BTC went parabolic followed by the rest of the crypto market. Historically the crypto bull market following the bitcoin halving lasts for around two and a half to three years followed by a year to a year and a half of price decline.
Bear market Possibilities:
- The first possibility is that there is still room for one more epic rally before the crypto bear market sets in. This is again unlikely for reasons we’ll get into later.
- The second possibility is that the crypto bear market began back in November and if that’s the case then we have around another six to 12 months before prices start to pick up again.
- The third possibility is that the crypto bear market did in fact begin when TERRA collapsed some time ago. And if that’s the case, we have another 12 to 18 months of the bear market ahead of us.
Now, this third possibility seems to be the most likely and that’s because the next bitcoin halving is roughly two years away. Until then BTC could fall by up to 50% from its current price point, precisely down to 20 thousand.
However, this all assumes that the four-year crypto market cycle is still correct and has been called into question by many experts especially after the famous bitcoin stock-to-flow model was invalidated.
Institutional Investors Role
If you’re wondering why bitcoin’s stock-to-flow model was invalidated the short answer is institutional investors. During the last bull market, Bitcoin became a part of many institutional portfolios. This is thanks to the approval of institutional investment vehicles such as bitcoin futures, ETFs, etc.
In any case, most institutional investors seem to have lumped BTC in with other risk assets like tech stocks. And the evidence is that the two asset classes have become highly correlated over the last year.
In other words, whenever tech stocks pump, BTC pumps and vice versa. What this means is that the stock market cycle could become the primary driver behind BTC’s price action. The scary thing is that the stock market has basically been in a bull market for the last decade and many believe that what we’re seeing now is the beginning of that massive bubble popping.
Like crypto bear markets, bear markets for stocks have historically lasted for around a year. Though there are a few important exceptions to keep in mind. The longest bear market for stocks was supposedly after the great depression in the 1930s and it lasted almost three years.
Note that this was for the S&P 500. Some individual stocks took decades to recover. The longest bear market in recent memory was after the dot-com bubble burst in the early 2000s and it lasted for just over two years.
Similarity between Dot-com bubble and Current Crypto scenario
Many experts have drawn parallels between the dot-com bubble and the current crypto market. And if they’re correct then the crypto bear market could last for another two years regardless of what stocks do.
Recall that this timeline would be consistent with previous crypto bear markets but there are three additional possibilities to point out here as well.
- The first possibility is that bitcoin somehow decouples from the stock market which is extremely unlikely given the amount of institutional money pouring into BTC.
- The second possibility is that the crypto bear market lasts for just another 11 to 12 months and follows the stock market to new all-time highs after that.
- The third possibility is that the economy enters a recession in which case the crypto bear market will last for at least two years and possibly much longer.
Well, we got our first taste of the answer when fed chairman Jerome Powell started talking about raising interest rates last November. Stocks and cryptocurrencies have been crashing ever since. In March, the FED officially raised interest rates for the first time since 2018. And history suggests that the FED could continue raising them for another two to three years before backing down.
This ultimately depends on how long inflation continues to increase because high inflation is the reason why the FED is raising interest rates in the first place. Inflation in the United States is projected to come down to the FED’s two percent target in two to three years’ time.
This is consistent with the length of previous bear markets in stocks. And the crypto market is different. This means there are again three possibilities.
- The first possibility is that bitcoin somehow decouples from the FED’s interest rate increases which is very unlikely since institutions move their money to risk-off assets when interest rates are high.
- The second possibility is that the crypto bear market continues for two to three years. The FED is likely to continue raising interest rates.
- The third possibility is that the FED will be forced to stop raising interest rates for whatever reason causing both the crypto market and the stock market to continue their rallies.
Now it is extremely unlikely as it could lead to hyperinflation and the eventual collapse of fiat currencies. Potentially even the US dollar to be blunt. It’s looking much more likely that there will be a flight to fiat currencies across the board because of rapidly rising food costs. And now for the big question how high could crypto go during the next bull market?
Expected Bitcoin rise in next Bull Run
Well, the answer of course depends on which coin or token we’re talking about. But it all begins with bitcoin as far as I can tell. There are three distinct forecasts for Bitcoin’s future price and the first is to look at how much BTC is pumped after each bitcoin halving.
In percentage terms after the first bitcoin halving in 2012 BTC went up by around 100x. After the second bitcoin halving in 2016 BTC went up by around 30x. After the third bitcoin halving in 2020 BTC went up by around 8x.
Now, this admittedly small sample size suggests how much BTC pumps in percentage terms after each bitcoin halving has gone down by a factor of three with each halving. If we extrapolate this trend to the next bitcoin halving in 2024 which means BTC would pump by around 2 to 3x from whatever price it’s at the time of the halving which is anyone’s guess.
My guess is that this will translate to a BTC price that’s slightly above 100k. And if BTC’s price is 33k or above when the next halving occurs then it’s likely from the perspective of the first forecast. The second forecast for BTC’s future price comes from its correlation with the stock market coincidentally.
Previous bull markets for stocks have also resulted in 2x to 3x gains on average. There’s a possibility that BTC could pump even more if the digital gold narrative manages to gain ground amongst institutional investors.
Lots of experts have speculated that gold has already lost some of its market cap to BTC and some on-chain evidence that suggests the digital gold narrative is in fact gaining ground. This is the percentage of BTC held on exchanges that have been on the decline since the flash crash of march 2020 when the pandemic was declared.
When large amounts of a coin or token move out of an Exchange it sends a signal that investors are holding or at least don’t plan on selling anytime soon. What makes this on-chain evidence so significant is that it actually marks the first time in bitcoin’s history that the balance of BTC on exchanges has been steadily decreasing rather than increasing.
I take this as a sign that the smartest money is preparing for the possibility of BTC becoming the world’s next reserve currency. And that’s all for today’s post about when the current crypto bear market could end.
If you found it helpful then share it with your friends, so more people could read it and feel free to ask any question about cryptocurrency in comment section. Thank you all so much for reading and I’ll see you all very soon.
Disclaimer: There is a disclaimer before I give you hope. This post is solely meant to be instructive and entertaining; I am not a financial advisor. I’ll start by stating that this piece contains a lot of speculation simply because we are unable to foresee the future. So before investing in any assets please consult with your financial advisor.