Oh, if you only knew: have we reached the bear market yet? Will prices continue to drop for months, if not years, until they bottom out? Or are they just taking a breather to storm the next all-time high?
In stock exchange slang one speaks of the bull market when prices rise and the bear market when they fall. With Bitcoin - and in its wake all cryptocurrencies - bulls and bears take turns on a regular basis: the bulls push prices to a new high, and when this is reached, the price falls and the bears take over.
But when does it happen? If there was a scientific method to answer this question, we would probably no longer have to work. If you could say, “This is where the bear market begins,” you could just sell what you can sell and then, when prices have halved or third, buy again.
But nothing in life is as simple as that. One can only guess whether a bull market will continue or whether the bear market has already started. You can collect clues, for one thing, compare them with clues for the other, and then speculate halfway informed.
And that's exactly what we're doing now.
Notes on bears
So let's go bear hunting first. Where are they hiding and have they already taken over the terrain?
The price-related territory literally stinks of bears: It is just a month since the Bitcoin price reached an all-time high - that was on April 21 at a good 51,000 euros - but overall, the price has been moving sideways since mid-February. Bitcoin has never had a bull market in such territory. This is not proof that it cannot happen after all - but it tends to indicate that it is unlikely to happen.
This is certainly not what a powerful bull market looks like. Rather, the price has only been able to push its way higher with difficulty for months.
Bears love herds of unicorns
Also part of the territory is an absurdly high valuation of many coins. It was absurd when there were 69 unicorns in March - coins with a market capitalization of more than a billion dollars. There are now 98 of them.
Among these unicorns are far more zombies than living, more dead and unused blockchains than applications, more failed technologies than breakthroughs.
Extract from the ranking of the cryptocurrencies. If you don't raise a billion, you will hardly make it into the top 100.
Just a few examples: IOTA, which is still not a decentralized cryptocurrency and is currently trying to fix the failed Tangle technology, is worth more than $ 5 billion; as much Kusama, a coin that was actually planned as a test network for Polkadot; and Polkadot itself is a promising technology but valued at $ 38 billion without really having users. But that's still little compared to the 66 billion dollars that Cardano is setting up, a blockchain that neither seriously knows users nor smart contracts. And those are a few more of the more serious unicorns.
There is no doubt that the market is absurdly overvalued, and the chart clearly shows that it has been struggling to move prices higher for the past three months. The fact that the market is still giving birth to so many unicorns indicates that money is flowing from the informed to the uninformed investors. Smart money becomes dumb money - ideal conditions for a crash.
Overall, the holders of Bitcoin and other cryptocurrencies currently have an insane amount of virtual capital - and thus gigantic leeway to sell. If the knowledge seeps through that prices will now fall permanently, many will want to realize previously unredeemed profits.
Without a trigger, everything is nothing
But the territory alone does not make a bear market. We also need triggers - events that signal the market that it will now go down, which will become a self-fulfilling prophecy if the players in the market take it seriously.
Now there were several events that can be understood as follows:
1.) Elon Musk, who drove the current bull market with the Tesla investment, is now rowing back. The fact that he is selling the bitcoins in Tesla's portfolio - he threatened it indirectly - hovers over the market like a sword of Damocles.
2.) The reason for Elon Musk's rowing back lies in Bitcoin's alleged climate damage. Even if there are good arguments against this, it threatens to significantly inhibit the acceptance of Bitcoin.
3.) Dogecoin - Elon Musk's favorite coin - has gone up insane. By 10,000 or 100,000 percent or so. Such absurdly fast climbs rarely have a stable foundation.
Has increased roughly a hundredfold in six months: The price of Dogecoin.
4.) The Dogecoin mania has found numerous imitators: Memecoins for dogs, pigs and more.
SHIB, LEASH, AKITA, KISHU and ELON alone are all Doge Meme Coins that do not put more on the market than mimicking Dogecoin. SHIB currently has a market capitalization of $ 6.7 billion; LEASH, AKITA and KISHU don't even have a market capitalization because the amount of coins in circulation is unclear.
There were days in May when these five coins produced a trading volume of more than $ 1.5 billion on Uniswap alone. With so many unimaginatively crafted shitcoins generating so much trading volume - can there be a clearer sign of a bubble?
An example of how surreal the memecoin market is: purely for marketing purposes, the SHIBA creators sent a large number of SHIBA coins to the well-known address of Ethereum co-founder Vitalik Buterin. Free of charge. At the height of the memecoin bubble, he had SHIBA coins worth one billion dollars - they were given to him! - Donated to an Indian foundation against Covid. What is so empty can only crash, right?
5.) Tether finally reveals the composition of his reserves, and the result disappoints even those who usually defend Tether. If the tether dollars were to decouple from the dollar as a result, the market would collapse brutally. But even a small loss of confidence in Tether could help initiate a bear market in this scenario.
6.) The altcoin markets are decoupling from Bitcoin. Ethereum only reached an all-time high on May 12th and is almost a month behind Bitcoin. We had something similar in 2017 when Ethereum first decoupled after the top of the bubble, and then, when it was actually all over, Ripple also climbed to an all-time high. Such patterns are no guarantee of repetition - but an indication.
Bear sightings
All of these are traces that indicate bears. But they are not the bears themselves. We find these more in market movements:
1.) The course fell significantly. Both Bitcoin and Ethereum have given up almost a third of their value from the top. In the case of ether, this happened much more quickly due to the later occurring peak.
2.) A lot of bitcoins flow into the stock exchanges. According to Glassnode Alerts, the inflow on exchanges has reached a new all-time high.
3.) Interest rates are falling. The interest rates in the DeFi and CeFi markets, which you get for coins and fiat money, be it with exchanges, wallets or DeFi apps, are falling. They are still at a fairly high level, but a look at coinlend and compound shows that they are a long way from their peak. This can be seen as a sign that the market is cooling down.
That doesn't exactly look optimistic: we are in a territory where there are more honey pots than there are bears to be counted, we have found numerous tracks that suggest bears, and we have even seen one or two bears for ourselves. So are we in the bear market yet?
There is a lot to be said about it. But of course, there are also counter-arguments that you should be aware of.
Notes on bulls
So let's go look for the bulls. Do we find any evidence that the herd is still grazing?
The overvaluation noted above could be countered by a no less severe undervaluation.
Let's take a look at the terrain first. The absolute basis for bitcoin price is what is not bitcoin - the euros, dollars, and so on. And here it looks consistently bad to worse: the central banks are printing money, inflation is picking up, and nothing is likely to change for the better in the foreseeable future. Bitcoin has meanwhile established itself as an alternative investment, and more and more banks, asset managers, and financial service providers are creating the infrastructure to enable many people to hold bitcoins.
Since there are no laws of nature in markets, only past experiences, we have to compare the area in which we are currently operating with what preceded the bear markets in the past. And here we see some clear differences.
All previous bull markets resulted in a steep spike. The rise in the price accelerated until the price shot up almost vertically. In autumn 2013 the price quintupled within a month; At the end of 2017, it tripled within the same period. From there it collapsed suddenly, fell dramatically by 40 percent (2013), or even 60 percent (2018), then cushioned, briefly inspires hope, and then slowly tumbled down like the famous dead cat.
The typical pattern up to now cannot be seen. Instead, we have a continuous rise that has been repeatedly interrupted by steep peaks and their correction. At no point has the price doubled in a month, and at no point has it fallen rapidly by more than 20 percent. It smells a bit like bears, but the differences to the previously known bear terrain cannot be overlooked.
A good comparison can also be found in the rainbow chart, which has been scaling the Bitcoin rate logarithmically since 2013
It doesn't look like this bubble is closed yet. First, the bull market has lasted 9-11 months longer in the past than before, and second, the bubbles so far have ventured a logarithmically steeper peak. While he has always made it into the “maximum bubble” areas, he is still stuck in the Fomo Arena today.
But let's come from the rough terrain to the events and arguments.
A glass of water, maybe a bucket too - but not a flood yet
So the train of Bitcoin purchases for corporate coffers continues. The last company known to have added Bitcoins to its portfolio is the Japanese-Korean game developer Nexon. That was May 5th, so not that long ago, and there's no evidence that Nexon was the last company.
Many companies first have to overcome the legal, bureaucratic, and tax hurdles to get there. I'm pretty sure that in Germany - as in almost all countries - there are not enough tax advisory resources to enable even a single-digit percentage of companies to put some of their cash in Bitcoin. If there is any sensitivity at all for it to be possible.
And Bitcoin itself is just the tip of the iceberg. Defi opens up numerous other opportunities for companies, of which the return on capital is just the beginning. Here we have the material for a bubble that is not even visible because it takes place in previously largely unknown territory.
We find the same in the private sector: A small percentage of people still hold Bitcoins. At least that's how I experience it in my private environment. If I had to guess, I would say that in our place, in my family, and in my circle of friends it is less than ten, sometimes even less than one percent. And although I am unobtrusive, I am happy to offer my practical and theoretical help.
At the banks, too, the infrastructure is only just being rolled out to enable them to sell and store bitcoins. The first Swiss banks are taking the lead here, but usually, there is a lack of the technical basis and the legal framework. Even PayPal, which sold Bitcoins in the US, has the service that has yet to bring to Europe.
In other words: what has happened so far was just a drop, maybe a glass of water, or a bucket if you like. But it was nothing more than a taste of the tide that is possible.
The power of scarcity
From a purely fundamental point of view, we can find everything on our terrain that would be necessary for the Bitcoin price to double or multiply again. One should never underestimate the power of scarcity: There are only a good 18 million Bitcoins, of which a maximum of 16-17 million are in circulation. There are almost 52 million millionaires worldwide. If each of them wanted some bitcoin, each of them would get just 0.3 BTC.
This forecast would also correspond to what two very well-established models predict for the Bitcoin price: the stock-2-flow model (S2F) and the rainbow chart. If history repeats itself, in a few months this bubble would peak at $ 120,000 to $ 150,000, while the S2F model predicts a peak between $ 100,000 and $ 200,000.
These models have been very stable in the past: the Bitcoin rate followed the S2F model, with slight digressions but reliable, and it always moved between the dark blue and red bands of the rainbow.
So we have good arguments - for both the bears and the bulls. And I have no idea which of these weigh more heavily.
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