BTC 56% Drop from ATH
It is Thursday, 24 June 2021. And the BTC price is currently $34,763. Two days ago, the price crashed spectacularly yet again, this time over 30% from the highs of the previous week. And almost, 56% from the ATH (All-Time-High) of 65K set on 14 April. This time the price hit a low of $28,525. Is the Bitcoin chart indicating bearish signals, or was this just the typical “shaking out of the weak hands”? Today we are going to find out if BTC is in a bear market and that really matters.
Introduction
It’s so easy to get caught up in the short term price volatility of Bitcoin and cryptos in general. We tend to think because something has gone up in value for the 3 months, it’s going to do so forever. We need to keep in mind that we are investing in a very high reward asset class. With high reward comes high risk and volatility. Sometimes we just need to take a step back and relax and have a look at the bigger picture. As the saying goes — When in doubt, zoom out!
What is the definition of a Bear Market
Before we can determine whether BTC is Bull or Bear, we need to determine the definition of a Bear market. According to Investopedia, a traditional bear market is when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment. Now take that with a grain of salt — that might be true for stock markets, but not entirely for crypto markets. That would mean that Bitcoin is in a bear market every other Thursday!
According to Binance Exchange, generally speaking, a bear market refers to a strong market downtrend that presents significant falling prices over a relatively short period of time. When compared to traditional markets, cryptocurrency markets are smaller and thus more volatile. Therefore, it is quite common to see stronger and prolonged crypto bear markets, where 85% price drops are not that rare.
The Charts
Taking the above into account and considering where we are currently at, we can deduce the following. One, we have had significant downward price action, 56% to be exact. Two, the downward trend has been going on for about 70 days (i.e. more than 2 months) now. Three, we have a decrease in trading volume, meaning that sentiment has died down. And four, the massive Head & Shoulders pattern that BTC has been printing is generally, a very Bearish pattern. On top of that, we are currently trading below the 21 week SMA (Simple Moving Average), which is also very bearish.
BTC Chart — Printing Head & Shoulders
So technically, we could say that yes, we are in a bear market. Now granted, that doesn’t necessarily mean that we are heading into another Crypto Winter that will last for 3 years. It just means that we are in a major downtrend. On the other hand, it could only be a major correction within a much larger bull cycle. And possibly, the trend could reverse again within the next two months or so. Similar to that which we saw in the midst of the 2013 Bull run. In 2013, we also technically had a weekly close below the 21 week EMA, after which we went full-on Bull. Fact is, we should look at the data and make a rational decision. We have to look at it, for what it is. The worst thing you can do in a Bear market is cry, “Bull”.
Worst case scenario? Who knows? BTC has historically never gone back down below its previous ATH. So, theoretically, we shouldn’t see a lower price than 20K. But that doesn’t mean that it isn’t possible. If we have a look at the Fibonacci Retracement numbers, specifically the 618 — we can see a key level of about $25,800. The 618 level would imply a 61.8% retracement in price, also commonly referred to as, the “Golden Pocket”. Personally, I’m betting on that as the bottom. Also, it is my belief that we are in for a brief Bear market, but within a much larger cycle.
BTC Fibonacci 618 Retracement
Yes, if you bought at 59 or 64K, then you are not going to like to hear the bearish tone. But the fact is, that you are judging an asset on two or three months worth of price action. I know a lot of people, including myself that bought BTC in 2017 at 16K or even 20K. A few weeks later, it felt like the world was gonna end and that was it. Only, that was not it. Even through a crypto winter, only three short years later — BOOM💥 3X returns!!
BTC by the Numbers
Now, for the interesting part, or as I like to call it, the good news. Why it really should not matter if BTC is in a bear market, or not. As mentioned earlier — when in doubt, zoom out. When I say out, I mean way… out. Let’s have a look at the last 10 years (that’s right, a decade) worth of price action. Dan Morehead from Pantera Capital recently posted this on his Twitter account. “It’s (BTC) currently trading at 281% YoY — which seems entirely plausible given the money printing that has occurred. Even lumber is up 382% YoY. Crypto doesn’t look overvalued.”
BTC year-on-year Return — Dan Morehead (Pantera Capital)
This was confirmed earlier in the year with a spreadsheet from Charlie Bilello. His conclusion, BTC YoY (year-on-year) return for the past 10 years, 230%. Bear in mind, this was in March 2021, just before the major run-up to the ATH (All-Time-High) of 65K.
I the meantime, Raoul Pal (famous Macro Economist) tweeted the other day, that even with the massive correction, BTC still produced a 200% return, Year-to-date! “It’s still up 200% in a year! Moon!” Let that sink in for some perspective. 😳 And that is just for this calendar year, 2021.
Raoul Pal — Twitter
Strategy
Bottom line, I can’t tell you what to do. I can’t even confirm that we are currently, full-on Bear. We could just as well be in a mid-cycle Bull run correction. We could still see a 100K BTC within this year. Yet, we could also see a 20K BTC this year. Many people have had it engraved in their minds that 2021 has to be an absolute bull cycle, especially because of the halving in May of 2020.
Some influencers argue that we may very well be finding ourselves within a super-cycle. In other words, instead of the usual 4 years between bull markets, we may now have an extended bull run, mainly because of all the quantitative easing and money printing (stimulus) going on. I am not saying that we are in a super cycle, but bitcoin cycles have had the tendency to increase in the time frame and play out over a longer time period.
HODL BTC
That being said, if it is a longer cycle then it kind of makes sense that the price isn’t just gonna go up in a straight line. It seems reasonable that you can’t just have one continuous bull market that lasts for 2 to 3 years. There are going to periods where you go down for while and then consolidate and then go back up again.
Whether or not BTC is in a Bear market, I don’t think it’s going to take another 1,100 days before we hit another ATH, like it did in the last cycle. With that in mind, let’s talk worst-case scenario. The 200 week SMA tends to be the worst-case scenario for BTC. This indicator is currently at about 13K, bearing in mind that it is moving up fast (just because it’s lagging by 200 weeks). So again, I think 20K should be a relatively safe bottom but we could go below. Even then, I don’t think it would be for very long.
Conclusion
For now, I’m going to call this the Bear Market Blues, that doesn’t mean that we can’t come out of it. If we go another 3 years before we put in another ATH, then yes, we are full-on Bear and 64K was the top of the 2020/2021 Bull market. However, I don’t believe that to be the case. For now, we really need to consolidate and build a base before BTC can climb higher. This could take months.
To conclude. Is BTC in a Bear market? Yes, No, you decide — it doesn’t matter. Always remember, that the bull markets make you money, but the bear markets make you rich! The people that stick around in the bear market for the next bull market, are the people that tend to make a lot more money than the people who go away for the bear market and then come back for the bull market.
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