What causes a crypto bear market?
A downward trend in pricing can typically cause a bear market to begin. As prices continue to drop, investors simultaneously lose confidence that prices will recover, resulting in further downtrends.
In general, things such as wars, political crises, pandemics and slow economies may trigger the start of a bear market. Government intervention may also cause a bear market to begin. In crypto, however, it’s much harder to predict when a bear market will start based on previous trends. Whereas the stock market already has decades of data for investors and analysts to refer to, the crypto market is relatively young.
While the causes of a bear market vary, there are a few common indicators that a bear market is going to start. Some of the indicators of an emerging crypto bear market are:
- Lower trading volume: This usually means that people have started to hold their coins due to uncertainty in the market.
- Negative sentiments from traditional finance: An example of this was when JPMorgan CEO Jamie Dimon called Bitcoin a fraud in 2017, just months before it reached $20,000 per unit and then crashed promptly.
- Death cross: A technical indicator pertaining to an asset’s crossing from a 50-day moving average to a 200-day moving average.
- Backwardation: When an asset’s price in the futures market is lower than the current market price.
- Changes in the federal funds rate: The rate at which banks lend/borrow their excess reserves overnight.
- Intervention from regulatory bodies: An example of this is the Chinese government’s restrictions concerning crypto software and mining. Such interventions force a lot of mining operations to go offline, causing widespread uncertainty
