Everyone, except maybe those living near the equator, has experienced the changing seasons. We all have our favorites; some people love the summer while others live for wintertime.
Well, being involved in the cryptocurrency space is no different. The entire crypto market goes through seasons just as distinct as the earth’s seasons. Anyone investing in crypto for more than four years has experienced them all, spring, summer, fall and winter. The seasons are visible when viewing the logarithmic Bitcoin price chart.
Crypto spring is a time of rebirth for dormant crypto prices. This season leads into crypto summer, where prices surge to new highs like lush summer foliage. Crypto fall is a time of uncertainty. Is the crypto summer truly over? Eventually, the steady decline in prices answers that question.
Then comes the cold crypto winter. Prices have fallen more than anyone would have imagined. Those who stuck around for the quick gains of crypto summer are long gone. Social and mainstream media are filled with stories of the death of Bitcoin and the entire crypto market.
“Bitcoin is dead” and “crypto is going to zero” are the headlines. Social media posts claiming crypto is nothing but a Ponzi scheme are common. On the surface, the crypto market seems as barren as the frozen tundra. Even though underneath the surface, innovation continues. At times the crypto winter seems like it will never end. This period represents the brutal reality of investing in crypto.
Crypto winter weeds out the true crypto believers from the get-rich-quick crowd. Surviving the four seasons makes you a better investor. It builds character, and you learn about patience and capital preservation. As the crypto winter drags on, the question “How much longer will it last?” is common.
This crypto market cycle is no different. However, the crypto summer of last year was interrupted by a cold front that lasted from May until early August. This price action resulted in a double top for the price of Bitcoin. Crypto fall has come and gone, and crypto winter is here. So naturally, the question once again is, How long will it last?
Why is the Crypto Market Going Down?
Before answering the question above, let’s examine why the cryptocurrency market has fallen since the Nov. 10, 2021 peak. Most people asking why the crypto market is going down are new to the crypto market. They are not familiar with natural crypto market cycles.
Even though there are natural market cycles, that doesn’t mean outside forces can’t affect those cycles. The current macroeconomic environment is challenging to say the least. U.S. inflation is running at a 40-year high and the Fed is raising interest rates to try and combat it. Inflation is not just a U.S. problem; it is a problem in countries worldwide.
Many economic indicators point toward a possible U.S. recession, and, on top of all that, there is a war raging in Eastern Europe. This macroeconomic environment has created a risk-off atmosphere playing havoc with markets worldwide. For a while now, Bitcoin has been correlated with the U.S. stock market, specifically the S&P 500. This connection is evident when comparing BTC and the SPDR S&P 500 ETF Trust (SPY), which follows the price of the S&P 500. The stock market pullback probably has also played a role in Bitcoin’s price decline.
Is it possible that all these negative forces could also have cut the 2021 bull market short? Sure, that is possible, but for the most part, this bear market seems to be just part of Bitcoin’s normal market cycle.
It could also be argued that Bitcoin has held up pretty well considering all the negative outside forces. As of July 14, 2022, Bitcoin’s closing price was $20,589 (Binance). That is down about 70% from the November peak; all things considered, it could be a lot worse.
Will the Crypto Market Keep Crashing?
This is the million-dollar question, and the truth is no one knows the answer. Bitcoin held in a range on each side of $30,000 for a month before the support of that level failed. Now Bitcoin has found support around the $20,000 level for about the last month, down about 70% from the peak.
Bitcoin Daily Chart
So now the question is, will this support level also fail? There isn’t any way to know the answer to that question either. But, despite other parts of the crypto market already devastated, if that level does fail and Bitcoin drops significantly lower, there will be more market-wide carnage.
Can Macroeconomics Affect the Crypto Market?
There is no question that macroeconomic factors affect most traditional markets. These factors include inflation, economic growth rate, gross domestic product (GDP), monetary policy and unemployment levels.
Sometimes the crypto market can seem isolated from non-crypto events, but that isn’t necessarily true. The crypto market is not immune from either the positive or negative effects of these macroeconomic factors. It seems increasingly that the price of Bitcoin is correlated with the SPDR S&P 500 ETF Trust (SPY). So when the stock market pops or takes a hit, this shift can transfer to Bitcoin and the rest of the crypto market.
The correlation isn’t 100% and can come and go, but it is often pretty strong. This correlation is evident when looking at the chart below, so it is crucial not just to pay attention to the crypto market but also macroeconomic factors.
Bitcoin 5-minute Chart - SPY / BTC Correlation
When and Where Will Bitcoin Bottom?
If “Will the crypto market keep crashing” is the million dollar question, then “Where will Bitcoin bottom” is the billion dollar question. It is so much more important because Bitcoin leads the entire crypto market; the rest of the market follows where Bitcoin goes.
Bitcoin has been holding around the $20,000 level for a month after a quick plunge from the $30,000 level. So now the question is, is the $20,000 a level bottom and is a 70% drop from the November peak enough pain?
Although past price patterns do not need to be repeated, maybe looking at Bitcoin's price history can give some clues as to what might be possible. The chart below shows that Bitcoin’s previous two bear markets bottomed down about 85% from their peaks.
If Bitcoin drops a similar percentage in this bear market, that will put the price down just above $10,000. Bitcoin dropping another 50% down to $10,000 would inflict enormous pain on the crypto market. But that may be what is needed to hit bottom finally.
Could the June 18 wick down to $17,600 be the bottom and Bitcoin keeps slowly rising from here? Or is Bitcoin destined to match the percentage drops of past bear markets? Or maybe a bottom somewhere in between?
Bitcoin Weekly Chart
There is probably a good chance that Bitcoin will bottom out sometime before the end of 2022. Bitcoin bottoming does not mean that recovery will follow soon after. In past bear markets, the period of consolidation has lasted from several months to almost a year.
Looking at the chart above, you can see that most of the bull markets have occurred after Bitcoin halvings. With Bitcoin, anything is possible, but there is a higher probability that the pattern will continue. If that holds true, the next bull market won’t get going until after the next halving in April 2024.
Can the Crypto Market Still Recover in 2022?
Sure, anything is possible, but most likely, the only recoveries in 2022 will be short-lived bear market bounces. Bear market bounces are not uncommon and sometimes can be quite substantial in their size, 40% to 50% or more.
Again it should be stressed that anything is possible. Maybe the changing investor demographics and the expansion of the crypto sector will be enough to alter the bear market. Perhaps this bear market will be shorter in duration and shallower than previous bear markets. It is always good to keep an open mind while also being mentally prepared for the worst.
The Best Exchanges to Buy Crypto
There are hundreds of crypto exchanges worldwide, so finding one you like should be easy. If you live in the U.S., your choices will be slightly limited. Gemini and FTX are excellent exchanges with easy-to-use trading platforms. Of the 2, new investors may find the Gemini platform a bit easier to use.
Investors who want the ability to trade crypto and stocks from the same platform should go with Webull, Robinhood (NASDAQ: HOOD), SoFi Technologies Inc. (NASDAQ: SOFI), Interactive Brokers or Public.com. Many crypto investors use multiple platforms to buy and sell cryptocurrencies.
Whichever broker or exchange you choose, it is best not to store too much crypto on the exchange. Get a good crypto wallet, preferably a cold storage hardware wallet. Hardware wallets give you the highest level of security to keep your crypto assets safe.
Is Now a Good Time to Start Investing in Crypto Again?
It’s tough to give a blanket answer to that question. All investors have different objectives, time horizons and risk tolerances. There is no way to know if Bitcoin has bottomed or is even close to a bottom. Knowing this, anyone starting to invest in crypto now has to accept the possibility of the price of Bitcoin dropping significantly.
If you are willing to accept that risk, the best strategy is to dollar cost average into positions over a longer period. Dollar cost averaging will help minimize risk and give you a better overall average price. Above all, educate yourself, and only risk an amount you are willing to lose.