Top indicators of a Crypto bear market – Open zero trading account with NordFX
If you’re new to the field of cryptocurrencies, there are a lot of indicators that you need to understand, especially when it comes to bear markets. The Crypto market, since the day it was started, has seen several collapses in the price of cryptocurrencies, but every time it has bounced back stronger.
So let’s understand and get an overview of some of the indicators of a Crypto bear market. Let’s get started!
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What is a Crypto bear market?
A bear market is defined as a period of time when the market starts experiencing a substantial decline in the price of cryptocurrency or stock. This is usually caused by a recession, high unemployment rates, political instability or a combination of any or all of these things.
A Crypto bear market is one in which the value of cryptocurrencies falls by at least 20% or more from recent highs and continues to decline owing to widespread pessimism and poor market sentiment.
Warning signs of a Crypto bear market?
Here are some warning signs of a crypto bear market that every trader or investor should be aware of:
• Lower trading volume: The lower trading volume means that because of the uncertainty of the market, people have started holding their coins.
• Negative sentiments: These refer to the general outlook or overall attitude of the investors towards a particular cryptocurrency. For instance, in 2017, when JPMorgan CEO Jamie Dimon called Bitcoin a fraud (just months before it reached $20,000 per unit), it crashed promptly.
• Death cross: It is a chart pattern that indicates when a security short-term moving average (50 days) drops below its longer-term moving average (200 days).
• Backwardation: Backwardation is when the current price of an asset is higher than the price of the asset in the future market.
• Changes in the central bank fund rates: The central bank funds rate is the target interest rate set by the central bank of the country at which all the other banks lend/borrow their excess reserves overnight.
Different phases of a Crypto bear market
A crypto bear market typically consists of 4 different phases:
• First phase: The first phase is characterized by high prices, after which the investors begin to exit the markets and collect profits.
• Second phase: When the company earnings, asset prices and trading activity decline, along with previously optimistic economic indicators, it marks the second phase. As the situation gets worse, many investors start panicking, a condition called a capitulation.
• Third phase: This phase shows the entrance of speculators into the market, thereby driving up prices and trade volume.
• Fourth phase (Last phase): After a marginal increase in the third phase because of the speculators, in the fourth phase, crypto prices continue to drop but more slowly. As the investors get attracted by the low crypto prices and upbeat news, bear markets eventually start to turn into bull markets.
The Causes of a Bear Market
The causes of a bear market often vary, but in general, it often strikes before or after the economy’s recession. Investors carefully monitor the signs of a weak or sluggish economy, such as low employment, low disposable income, weak productivity, and a drop in business profits. Additionally, a bear market can also get triggered if a government intervenes in the economy.
A bear market indicates that there will be more unemployment and more challenging economic circumstances in the future.
Final Thoughts: The End of Bear Market
Although it is challenging to predict the time limit needed for the end of a bear market, it is clear that bear crypto markets are driven by many factors, both positive and negative.
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