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A bear market is not a single-day event as it has different phases and steps that lead to drastic market conditions over prolonged periods, which also differs from the corrections in the market. In some situations, the correction can seem like the beginning of the bear market, but there is a clear difference based on the time the market stays in the loss condition. The current condition can also juggled between these two by investors as the crypto market witnessed a major crash, impacting every cryptocurrency and turning the sentiments into fear as the investors hesitate to participate in the market.
5 Indicators To Identify The Beginning of Bear Market
Since the beginning of the year, the market conditions have been comparatively bullish, and the anticipation of the bull run was at its peak, especially after the Bitcoin halving. However, the current market condition following the crash is questioning whether the market has entered a bear market.
Various factors can determine the beginning of the bear market, and the five best indicators are market sentiments, Yield Curve, Liquidity, Government regulations, and frequent price corrections.
1.Market Sentiments
Sentiments are the first step in analyzing how the crypto market is performing. More accurately, it is the representation of how the investors are feeling and whether they are buying more crypto or selling or holding. It is a simple indication of how the market will move next.
Right before the recent crypto market crash, the user sentiments transitioned from greed to fear on the fear and greed index, which indicated that the investors were cautious with their investments. This sentiment may change based on economic factors, geopolitical events, etc.
Today, the market sentiment is still in the fear zone, but the data have changed from the earlier low of 37 to 40, hinting at an improvement in user sentiments.
2.Yield Curve
The yield curve is an economic indicator that represents the relation between the digital assets, bonds, and interest rates’ returns to their maturities. The curve here provides an understanding of the current market scenarios to anticipate future trends.
The bear market is associated with the inverted Yield curve as it represents the dominance of short-term rates over the long. In conclusion, investors prefer safe options and are willing to take only small risks, which affects the crypto price. However, this does not indicate an immediate shift to the bear market, as it can take months or years.
3.Liquidity
Liquidity can be rephrased as the availability of the assets in the market, which determines the easiness of buying and selling without affecting the price. If the liquidity is high, it is associated with the surging price or the bull run as the buyers and sellers are highly activity and the transactions are finishing smoothly. However, if the liquidity is low, the buyers or sellers might decrease, complicating the trades and raising volatility in the market as the supply and demand may vary.
4.Government Regulation and Economy
Government regulations and economic factors like GDP, employment rates, etc, also play a significant role in the performance of the crypto market.
The US Federal Bank has maintained the interest rates at 5.5% this year, which had a slight negative impact on the crypto market, but it was not significant enough for now. However, the FEDs had presented a plan of three rate cuts this year, which has not happened yet but could impact the market if that happens.
On the other hand, earlier reports have indicated an increase in US Job openings, which could boost the overall economy.
5.Frequent Price Correction
One of the definitions of the bear market states that if the market declines more than 20%, it is the beginning of a bear market. The crypto price is not constantly up, as the fluctuation happens continuously, which impacts the overall crypto market cap. Usually, this is called a correction, but if it goes past the 10% drop toward the 20%, it might be the beginning of the bear market.
The recent market crash created a huge market correction for two days, which led to the shift of the market cap from $2.15 Trillion to $1.97 Trillion. But now, that’s over as the market cap recovered to the same. However, frequent price corrections can indicate a loss of momentum among investors as short sellers are active.
Many technical indicators like Bollinger Bands, Relative Strength Index, MACD, etc, can also help in analyzing the performance of the cryptocurrencies and the downtrend in the market. If analyzed with other indicators combined, these can help in addressing the possibility of an upcoming bear run.
Continue Reading Is Robert Kiyosaki Bitcoin Crash Prediction Coming True?
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