The present crypto bear market has created panic, worry, and uncertainty amongst buyers. The dire scenario started when the worldwide crypto market cap fell beneath the $2 trillion mark in January 2022. Since then, the worth of Bitcoin (BTC) has fallen over 70% from its all-time high of $69,044.77 set on Nov. 24. November 2021. Equally, the values ​​of different main cryptocurrencies similar to Ether (ETH), Solana (SOL), Avalanche (AVAX) and Dogecoin (DOGE) are down round 90%.

So does historical past inform us something about when the bear market will finish? Let’s begin by inspecting the causes of the 2022 bear market.

Catalysts of the 2022 bear market

There are a number of elements which have precipitated the present bear run.

To begin with, the bear market began constructing in 2021. Throughout this time, many regulators threatened to impose harsh legal guidelines on cryptocurrencies. This created worry and uncertainty out there. For instance, the US Securities and Change Commission (SEC) has filed a lawsuit in opposition to Ripple. Moreover, China banned bitcoin mining, inflicting most of its BTC miners to relocate to different international locations.

A world surge in inflation and rising rates of interest triggered worry and uncertainty out there, leading to lower-than-anticipated crypto investments. Though a lot has been reported about inflation and rates of interest in the US, different international locations similar to India have skilled comparable challenges.

Notably, the Federal Reserve introduced earlier this 12 months that it could take powerful motion to “speed up the discount in month-to-month bond purchases.” In different phrases, the US deliberate to introduce measures that will decelerate its financial system as a way to management the ever-rising inflation within the nation. The chart beneath reveals the inflation development from 2016 to 2022.

Consumer worth index FRED. Supply: St Louis Fed

To decrease the speed of inflation, the Federal Reserve raised the federal funds fee twice through the 12 months. This diminished the disposable revenue of US residents, thereby dampening funding efforts in dangerous belongings similar to cryptocurrencies.

US rate of interest. Supply: St Louis Fed

Crypto analysts imagine that leverage was one other main trigger of the present bear market. Leverage means pledging a small amount of cash as collateral as a way to borrow a big quantity for funding. On this case, buyers borrow cash from inventory exchanges to fund their investments out there.

The drawback of leverage is that when an asset’s worth begins to fall, trading positions are liquidated, leading to a cascading crash in cryptocurrency costs. This lowers investor confidence and tends to create worry and uncertainty out there.

Whereas conventional markets have circuit breakers and protections, the crypto market doesn’t. Take for instance the latest collapse of Terra, its LUNA token – now often called Terra Traditional (LUNC) – and its stablecoin TerraUSD (UST). Throughout the identical interval, a number of different crypto corporations similar to Celsius, Three Arrows Capital, and Voyager Capital filed for chapter.

Indicators that the bear market is nearing an finish

Analysts research market cycles to foretell when a bear market will finish. Normally, market cycles contain 4 phases: accumulation, premium, distribution, and low cost. For Bitcoin, the market cycle spans 4 years or 1,275 days. The final part normally refers back to the bear market.

Bitcoin Market Cycles. Supply: Grayscale

In response to Grayscale, the crypto bear market begins when Bitcoin’s realized worth exceeds its market worth. Grayscale defines realized worth as:

“The sum of all belongings at their buy worth or realized market cap divided by the asset’s market cap, which supplies a measure of what number of positions are worthwhile or non-profitable.”

The realized worth of BTC surpassed the market worth on June 13, 2022. The desk beneath reveals the costs of bitcoin when its market worth was higher than the realized one.

Realized worth of BTC in comparison with market worth. Supply: Grayscale

It’s fascinating to notice that by July 12, the cycle had accomplished 1,198 days. Because the whole cycle lasts 1,725 ​​days, by that date, 4 months would elapse earlier than the realized worth would exceed the BTC market worth.

Nonetheless, on the finish of the 4 months, Bitcoin would wish one other 222 days to succeed in its earlier all-time high. Which means it could take a complete of 5 to 6 months from July for the bear market to finish. The graphic summarizes the anticipated course of the present crypto cycle.

The 2020 Bear and Bull Market Cycle. Supply: Grayscale

If the present market cycle has an analogous construction to the 2012 and 2016 cycles and Grayscale’s findings are correct, the bear market may finish between November 2022 and December 2022.

Associated: Why is the crypto market down at the moment?

How lengthy Bitcoin merchants count on the bear market to final

Bitcoin maximalists are inclined to view the Bitcoin halving as an indicator for predicting the subsequent bull run. Analyzing historical past, BTC has peaked inside 18 months of every bitcoin block reward halving.

Bitcoin halving historical past. Supply: Swyftx

Traditionally, Bitcoin halvings have preceded crypto bull runs, as illustrated within the chart above. So, BTC maxis claiming that the halving schedule instantly impacts Bitcoin’s bullish or bearish nature may be right.

Correlation chart of Bitcoin and S&P 500 as of October 20, 2022. Supply: TradingView

The 2022 bear market is exclusive for a number of causes. First, key macroeconomic variables similar to high rates of interest and rising inflation amplified its impression. Additionally, the crash of Terra-LUNA and high leverage throughout the crypto ecosystem contributed to the beginning of the bear run.

Notably, that is the primary bear market the place there’s a correlation between the inventory market and Bitcoin, with a correlation fee above 0.6 as of July 2022, based on knowledge from Coin Metrics. It is usually the primary time BTC’s value has fallen beneath the earlier cycle’s peak, with BTC’s value falling beneath $17,600.

Correlation fee of BTC and S&P 500. Supply: Coin metrics

The contrasting conditions between the 2021 crypto bull run and the 2022 bear market have stumped crypto buyers. Analysts imagine that the present bear market will finish between November 2022 and December 2022, with a potential bull run beginning between late 2024 and early 2025.

The views and opinions expressed herein are solely these of the writer and don’t essentially replicate the views of Cointelegraph.com. Each funding and trading transfer entails threat, it is best to do your individual analysis when making a call.