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Is Bitcoin (BTC) Bear Market Over?

Is Bitcoin (BTC) Bear Market Over?
27 Apr

The 2022-2023 Bitcoin (BTC) bear market ends, paving the way for potential growth driven by halving, reduced leverage, and increased adoption.

The Bitcoin halving, a significant event that occurs approximately every four years, is just around the corner. This event decreases the issuance rate of new BTC, and has historically triggered major bull markets. 

When the supply of new BTC drops while demand stays consistent, the price of Bitcoin inevitably increases due to supply and demand forces.

The Road to the Next Bitcoin Halving

Momentum Traders Have Left the Market

A bull market resulting from a Bitcoin halving usually attracts momentum traders who join in as the price of Bitcoin rises. This leads to the formation of a bubble that eventually collapses, resulting in a period of market washout during which these traders exit.

 Evidence from the average age of unspent transaction outputs (UTXO) indicates that the washout phase has passed. With the momentum traders gone, only those who hold onto their Bitcoin for the long-term, known as HODLers, remain in the market.

Bad News No Longer Affects Bitcoin Price

Over the past year, various negative events in the cryptocurrency space have affected the price of Bitcoin. Companies such as Terra, Three Arrows Capital, Celsius Network, BlockFi, Voyager Digital, FTX, and others experienced financial challenges. 

However, the recent bankruptcy of Genesis and concerns surrounding DCG, Grayscale, and Binance did not push Bitcoin to new lows. This suggests that the last of the sellers may have already exited the market.

Bitcoin Price Cycles Continue to Repeat

Until Bitcoin outgrows its characteristic four-year price cycles, market participants can expect a familiar pattern to emerge. In the 2014-2015 bear market, Bitcoin prices hovered around $350 before dropping to $200 and remaining there for months. 

During the 2018-2019 bear market, prices fluctuated around $6,000 before falling to $3,200 and staying there for months. In the most recent 2022-2023 bear market, Bitcoin prices have gravitated around $28,000 before dropping to $16,000 and staying there for months. In each case, the pattern is consistent: a peak, followed by a series of lower price highs and a final capitulation of over 40% that lasts for several months.

Bitcoin Price Over the Months.

BTC/USD Weekly Chart. Source: Trading View

Future Predictions for Bitcoin

While short-term price predictions are challenging to make accurately, if Bitcoin’s four-year cycle continues to play out as expected, there are several key insights. First, it is unlikely that the price of Bitcoin will drop to $16,000 again. 

In previous cycles, Bitcoin’s price never revisited the lows after returning to the pre-capitulation price low. Second, Bitcoin has proven to be resilient to regulatory pressures, as it is widely regarded as a commodity rather than a security. This implies that regulatory risks will not impact Bitcoin as heavily in the future.

Financial Advisors and Institutions Are Under-Allocated to Bitcoin

Data from Swan Advisor Services reveals that financial advisors and their clients are significantly under-allocated to Bitcoin. 

In previous cycles, there were valid reasons for this under-allocation, including a lack of suitable investment products and regulatory risks. 

However, these issues have largely been resolved for Bitcoin, suggesting that institutional adoption is likely to increase during the next bull market.

The Role of Financial Advisors in the Upcoming Bitcoin Bull Market

The end of the bear market presents an ideal opportunity for financial advisors to educate their clients about the advantages of incorporating Bitcoin into their investment strategies. 

As the bear market comes to a close, it’s a great time for investors to consider allocating a portion of their portfolios to this unique asset class. 

With the next Bitcoin bull market potentially on the horizon, financial advisors can play a pivotal role in facilitating Bitcoin adoption and helping their clients optimize their investment strategies.

Impact of Bitcoin Volatility on Leveraged Futures Trading

Bitcoin’s price fluctuations have had a considerable impact on both long and short futures traders, with $175 million worth of positions liquidated and $1 billion in open interest eliminated in the past 24 hours.

Longs represent bets on higher prices, while shorts are bets on lower prices. Liquidation occurs when an exchange forcefully closes a trader’s leveraged position due to a partial or total loss of the trader’s initial margin, which happens when a trader lacks sufficient funds to keep the trade open.

The Role of Major Crypto Exchanges in Bitcoin Futures Liquidations

OKX, Binance, and BitMEX have all experienced significant Bitcoin futures liquidations on their platforms, with OKX seeing over $52 million, Binance $38 million, and BitMEX experiencing the largest single liquidation order for a bitcoin/tether trade valued at $6 million.

Price Recovery and Market Dynamics for Major Cryptocurrencies

Following the recent price fluctuations, Bitcoin has regained its position at around $29,000. Other major cryptocurrencies, such as Ether (ETH), Dogecoin (DOGE), and Cardano (ADA), have also experienced a recovery, demonstrating the interconnected nature of the market. 

When it comes to Ether, however, it has not performed at the expected level, especially after the Shapella upgrade.

Bitcoin’s Estimated Leverage Ratio Hits a New Low

Bitcoin’s estimated leverage ratio, which gauges the degree of leverage used by traders on average, has reached its lowest point since December 2021. This decline suggests that the market may experience reduced price volatility in the future, which could potentially attract more mainstream participation in the cryptocurrency space.

Bitcoin Estimated Leverage Ratio.

Bitcoin Estimated Leverage Ratio. Source: Crypto Quant

The Future of Bitcoin and the Crypto Market

As the 2022-2023 Bitcoin bear market comes to an end, several factors are likely to influence the market’s future trajectory. The upcoming Bitcoin halving event, a decline in leverage trading, increased institutional investment, and the growing role of financial advisors in promoting Bitcoin adoption all indicate a positive outlook for the cryptocurrency. 

While short-term price predictions remain uncertain, the ongoing developments in the market suggest that Bitcoin and the broader cryptocurrency space are poised for continued growth and evolution.

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About Dren Hima

Being exposed to the crypto industry for the last few years has given me valuable experience with market analyses (technical and fundamental) as well as blockchain technology in general. As the content editor and a market analyst of Walletor, I strive to share the latest developments of the crypto industry, while also providing a unique educational experience for all Crypto & FinTech enthusiasts.

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