Since last November, the crypto market has been in a slow decline. As a result, most coins and tokens have lost all of their 2021 gains, and Terra’s recent collapse chucked a whole bucket of fuel on the fire. With so much uncertainty inside and outside the crypto market, it’s probable that more pain lies ahead. This, of course, has many wondering when this brutal bear market will end. So today I’m going to examine the current state of the crypto market, analyze the different dimensions of the crypto market cycle, assess when the bull market could come back and how high crypto could go in the long term.
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Is Crypto In A Bear Market?
I’ll start by saying that there’s a lot of speculation, and that’s simply because we can’t predict the future. All we can do is use current information to forecast what could be next for the crypto market, and that forecast could change as additional information comes to light.
So with that said, the first step to forecasting what comes next for the crypto market is figuring out where it is now. Although it’s almost certain that crypto is in a bear market, the fact of the matter is that this is still debatable. That’s because there isn’t a clear definition of what a crypto bear market actually is. A 20% drawdown from all-time highs is the bear market benchmark for stocks.
Obviously, if we applied the same benchmark to cryptocurrencies, then many, if not most, of them would be in a bear market every other week, even during what is otherwise a clear crypto bull market. A more logical bear market benchmark for cryptocurrency would be the long-term price trend, specifically lower lows in price, especially for Bitcoin. That’s because altcoins are heavily correlated to Bitcoin.
The problem with that benchmark is that we’ve seen the crypto market suddenly resume a bullish trend after Bitcoin made multiple lower lows, most notably last May. In the months that followed, almost every altcoin went on to make new all-time highs, as well as Bitcoin. You don’t want to be on the wrong side of that kind of price action.
Today’s crypto market is in a similar situation, with BTC reaching a lower low for the first time since May. Does this mean we could see the same reversal? Well, maybe, but there are some objectively bearish macro factors at play that will likely prevent most coins and tokens from hitting new all-time highs. As such, it’s safe to assume that we have officially entered a crypto bear market and I personally believe that said bear market was precipitated by terror’s crash.
Crypto Market Cycle
Anyway, assuming the crypto bear market has in fact begun, we can use previous crypto market cycles to estimate roughly when it will end and when a new bull market will begin. As many of you will know, the crypto market seems to follow a four-year cycle, and that’s because of bitcoin’s halving schedule.
The Bitcoin halving is when the number of bitcoins awarded to miners in each bitcoin block is cut in half, and this happens roughly every four years. As basic economics dictates, if the supply of something is restricted and demand for it stays the same or increases, then its price rises. This is why Bitcoin tends to appreciate in price after every Bitcoin halving. In addition, because most altcoins are highly correlated to Bitcoin, they tend to come along for the ride. The last bitcoin halving happened in May 2020, and in the months that followed, BTC went parabolic, followed by the rest of the crypto market. In other words, bulltime, baby!
Historically, the crypto bull market following the bitcoin halving lasts for around two and a half to three years, followed by a year to a year and a half of price decline. In other words, bear the market. This means there are three possibilities:
- The first possibility is that there is still room for one more epic rally before the crypto bear market sets in, which is again unlikely for reasons we’ll get into later.
- The second possibility is that the crypto bear market began back in November, and if that’s the case, then we have around another six to 12 months before prices start to pick up again.
- The third possibility is that the crypto bear market did in fact begin when terror collapsed a couple of weeks ago, and if that’s the case, then we have another 12 to 18 months of bear market ahead of us. This third possibility seems to be the most likely, and that’s because the next bitcoin halving is roughly two years away.
Until then, bitcoin’s price could fall by up to 50% from its current level, specifically to $20,000. However, this all assumes that the four-year crypto market cycle is still correct, and this has been called into question by many experts, especially after the famous bitcoin stock flow model was invalidated.
Stock Market Cycle
Anyhow, if you’re wondering why Bitcoin’s stock to flow model was invalidated, the short answer is that institutional investors. During the last bull market, BTC became a part of many institutional portfolios. This is thanks to the approval of institutional investment vehicles such as bitcoin futures ETFs and the like. On that note, the approval of the first bitcoin futures ETF in late October wasn’t far off from signaling the top for BTC, which came in early November. I’m pointing this out because the listing of bitcoin futures on the Chicago Mercantile Exchange in December 2017 basically marked the top for BTC back then. Going forward, food for thought.
In any case, most institutional investors seem to have lumped BTCC in with other risky assets like tech stocks, and the evidence is that the two asset classes have become highly correlated over the last year. Put simply, whenever tech stocks pump, BTC pumps and vice versa. This is why indices like the S&P 500 and the Nasdaq come in handy when analyzing BTC’s price action.
What this means is that the stock market cycle could become the primary driver behind Bitcoin’s price action from here on out, and the rest of the crypto market by extension. The scary thing is that the stock market has basically been in a bull market for the last decade, and many believe that what we’re seeing now is the beginning of that massive bubble popping. While it’s too soon to say, one thing’s for certain, and that’s that the stock market is fast approaching bear market territory. It briefly hit that aforementioned 20% drawdown from all-time highs in mid-May.
Like crypto bear markets, bear markets for stocks have historically lasted for around a year. Though there are a few important exceptions to keep in mind, the longest bear market for stocks was supposedly after the great depression in the 1930s, and it lasted almost three years. Note that this was for the S&P 500. Some individual stocks took decades to recover.
The longest bear market in recent memory was after the dot-com bubble burst in the early 2000s, and it lasted for just over two years. Many experts have drawn parallels between the dot-com bubble and the current crypto market, and if they’re correct, then the crypto bear market could last for another two years regardless of what stocks do. Recall that this timeline would be consistent with previous crypto bear markets, but there are three additional possibilities to point out here as well.
- The first possibility is that bitcoin somehow decouples from the stock market, which is extremely unlikely given the amount of institutional money pouring into BTC.
- The second possibility is that the crypto bear market lasts for just another 11 to 12 months and follows the stock market to new all-time highs after that.
- The third possibility is that the economy enters a recession, in which case the crypto bear market will last for at least two years and possibly much longer.
Federal Reserve Cycle
The interesting thing about the stock market is that much of its recent price action has been driven by the monetary policy of central banks, most notably the jolly old Federal Reserve. When the fed reduces interest rates, the price of goods, services, and assets tends to inflate. When the Fed increases interest rates, the price of goods, services, and assets tends to deflate. As you can see, the Fed has been reducing interest rates for decades. It’s no coincidence then that we’ve seen the cost of just about everything increase significantly over the same period.
In the context of the stock market, companies are trading at multiples of what their raw revenues justify. There’s no doubt that many coins and tokens are likewise overpriced relative to their fundamentals, and this begs the question of what happens to both the stock and crypto markets when the Fed raises rates. Well, we got our first taste of the answer when Fed chairman Jerome Powell started talking about raising interest rates last November. Stocks and cryptocurrencies have been crashing ever since.
In March, the Fed officially raised interest rates for the first time since 2018. History suggests that the Fed could continue raising them for another two to three years before backing down. This ultimately depends on how long inflation continues to increase, because high inflation is the reason the Fed is raising interest rates in the first place.
Funnily enough, inflation in the United States is projected to come down to the Fed’s two percent target in two to three years’ time, which is consistent with the length of previous bear markets in stocks and crypto alike. This means there are three possibilities:
- The first possibility is that bitcoin somehow decouples from the Fed’s interest rate increases, which is very unlikely since institutions move their money to riskier assets when interest rates are high.
- The second possibility is that the crypto bear market continues for the next two to three years, during which the Fed is likely to continue raising interest rates.
- The third possibility is that the Fed will be forced to stop raising interest rates for whatever reason, causing both the crypto market and the stock market to continue their rallies.
As amazing as this would be, it is extremely unlikely as it could lead to hyperinflation and the eventual collapse of fiat currencies, potentially even the US dollar. To be blunt, it’s looking much more likely that there will be a flight to fiat currencies across the board because of rapidly rising food costs.
How High Could Bitcoin Go?
And now for the big question: how high could cryptocurrency go during the next bull market? Well, the answer, of course, depends on which coin or token we’re talking about, but it all begins with bitcoin. As far as I can tell, there are three distinct forecasts for bitcoin’s future price, and the first is to look at how much BTC pumped after each bitcoin halving in percentage terms.
- After the first bitcoin halving in 2012, BTC increased by around 30x.
- After the third bitcoin halving in 2020, BTC went up by around 8x.
This admittedly small sample size suggests how much bitcoin pumps in percentage terms after each bitcoin halving, which has gone down by a factor of three with each halving. If we extrapolate this trend to the next bitcoin halving in 2024, this means BTC would pump by around 2 to 3x from whatever price it’s at the time of the halving, which is anyone’s guess. My guess is that this will translate to a bitcoin price that’s slightly above 100k, and if bitcoin’s price is 33k or above when the next halving occurs, then it’s likely from the first forecast.
The second forecast for Bitcoin’s future price comes from its correlation with the stock market. Coincidentally, previous bull markets for stocks have also resulted in 2 to 3x gains on average. There’s a possibility that Bitcoin could pump even more if the digital gold narrative manages to gain ground amongst institutional investors. Lots of experts have speculated that gold has already lost some of its market cap to Bitcoin and there is some on-chain evidence which suggests the digital gold narrative is in fact gaining ground. This is the percentage of Bitcoin held on exchanges, which has been on the decline since the flash crash of March 2020, when the pandemic was declared.
When large amounts of a coin or token move off of an exchange, it sends a signal that investors are holding, or at least don’t plan on selling anytime soon. What makes this on-chain evidence so significant is that it actually marks the first time in bitcoin’s history that the balance of BTC on exchanges has been steadily decreasing rather than increasing. Call me crazy, but I take this as a sign that the smartest money is preparing for the possibility of Bitcoin becoming the world’s next reserve currency. You have to know that this is within the realms of possibility given that central banks have been accumulating alternative currencies. You might also recall that it will likely take another couple of decades for Bitcoin to achieve world reserve currency status and that Bitcoin’s market cap would be in the tens of trillions if that happens.
In the shorter, more realistic term, bitcoin bought by countries that have adopted bitcoin, such as El Salvador and the Central African Republic, will add an additional dimension of buying pressure to bitcoin. This could amplify Bitcoin’s price action under the two aforementioned forecasts. It’s important to remember that as bitcoin’s market cap grows, BTC’s price will increase less in percentage terms.
How High Could Crypto Go?
This brings me to how high altcoins could go during the next crypto bull market, and I hope you’ll forgive me for not analyzing all 20 000 of them. I also regret to inform you that I can’t give you the forecasts for the cryptocurrencies that are likely to see the largest gains in percentage terms. That’s because these cryptocurrencies are highly speculative tokens, most of which probably don’t even exist yet.
To say for certain is that institutions became very interested in altcoins during the most recent bull market, specifically smart contract cryptocurrencies and apparently select defy tokens too. This is evidenced by all the exchange traded products for altcoins that were introduced over the last year. I reckon it’s reasonable to assume that the assets under management of these institutional investment vehicles are a de facto indicator of how interested institutions are in each altcoin. Data from just ETF reveals that besides bitcoin ETFs for the Binance smart chain, Ethereum, Tron, Solana, Cardano, Ripple, Polygon, Tezos and Avalanche had the most assets under management.
It is therefore possible that these cryptocurrencies could see even more institutional investment when the next crypto bull market comes around. Some of these altcoins could even become lumped in with Bitcoin as part of institutional portfolios. This is arguably already the case for ETH. This is because ETH has fallen just as much as bitcoin in percentage terms from their respective all-time highs. Historically, ETH would fall by much more because investors saw Ethereum as another altcoin. The absence of this disconnect suggests that investors now see Ethereum as something more, and some have gone as far as to suggest that Ethereum is following in the footsteps of bitcoin, just one cryptocycle behind.
During the last crypto bull market, at one point, bitcoin’s market cap hovered at around 300 billion near BTC’s top. This isn’t all that far off from the 400 billion market cap Ethereum maintained last autumn near ETH’s top. This time around, bitcoin’s market cap exceeded 1.2 trillion. If Ethereum reaches a similar market cap during the next crypto bull run, it would imply an ETH price of more than $15,000 for Ethereum competitors with significant institutional interest and accessibility, such as Cardano, Solana, and Avalanche. The same phenomenon could occur with all three following in Ethereum’s footsteps.
This would give all three cryptocurrencies market caps in the hundreds of billions. You can calculate what that means for ADA, SOL, and AVAX. It’s important to stress, though, that this is for the next crypto bull market in 2025. I must also reiterate that these price predictions are based on speculation upon speculation, and I must admit that they’re unlikely to be met because all these crypto projects are Ethereum competitors. This means that they’re fighting for the same pool of developers, users, and investors. I would go as far as to say that this division of resources among Ethereum competitors is why eth didn’t hit 10k. It’s also one of the reasons why Ethereum might not flip over to Bitcoin by market cap anytime soon.
[This article is a transcription of a video made by Coin Bureau]
Original video: https://youtu.be/WxJvZMEYF8w ]