Although it is impossible to predict when a market will bottom, traders can use these five signs to gain an early indication when a crypto bear market is nearing its finish.
The bull market has ended, and the prospect of a protracted crypto winter is giving traders the shivers. Bitcoin’s (BTC) price has dropped to levels that even bears didn’t foresee, leaving some investors scratching their heads and asking how BTC will recover from this massive drop.
The current question on everyone’s mind is “when will the market bottom and how long will the bear market last?” Prices are dropping everyday, and the current question on everyone’s mind is “when will the market bottom and how long will the bear market last?”
While it’s impossible to tell when a bear market will end, looking at previous downtrends can help you figure out when it’s time to go.
Here are five markers that traders use to predict when a crypto winter is about to end.
The cryptocurrency market is starting to rebound.
Widespread layoffs across the crypto ecosystem as companies attempt to cut costs to survive the lean times ahead are one of the classic signals that a crypto winter has arrived.
Several key industry players, including technological businesses like ConsenSys and Bitmain, as well as crypto exchanges like Huobi and Coinfloor, announced layoffs during 2018 and 2019.
The recent flurry of layoff announcements, such as Coinbase’s 18 percent staff reduction and Gemini’s 10% cut, are troubling, and considering that the current bear market has only just begun, layoffs are certain to increase. As a result, it’s probably too early to use this indicator as evidence that the bear market is ending.
When companies start to hire again and new ventures open with significant investment announcements, it’s a solid sign that a crypto spring is on the way. These are signs that money is starting to flow back into the system, indicating that the worst of the bear market has passed.
Keep an eye on whether Bitcoin’s 200-week SMA acts as resistance or support in crypto bear market.
When the price falls below the 200-week simple moving average (SMA) and then climbs back above it, this has marked the conclusion of a negative period numerous times in Bitcoin’s history.
Previous instances where the price of BTC went below the 200-week SMA, the light blue line, and subsequently climbed back above the measure, as seen by purple arrows on the chart above, anticipated market uptrends.
A strong BTC price recovery above the realised price, which is the total purchase price of all Bitcoin and is depicted by the green line in the chart above, can also be used as additional evidence that the market trend is becoming positive.
When it comes to predicting bottoms, the RSI reigns supreme.
The relative strength index is another technical indicator that can reveal whether a bear market’s lows have been reached (RSI).
Specifically, during prior bear markets, the Bitcoin RSI fell below a score of 16 and into oversold territory around the time BTC made a low.
The confirmation that the low is in comes when the RSI climbs back above 70 into overbought territory, showing that an increase in demand has returned to the market, as shown in the two instances indicated with orange circles above.
The ratio of market value to realised value
The MVRV Z-score is a statistic designed to “identify times where Bitcoin is substantially over or undervalued relative to its ‘fair value.'”
The chart above shows the current market value of Bitcoin, the realised price, and the Z-score, which is a “standard deviation test that pulls out the extremes in the data between market value and realised value.”
Previous bear markets have coincided with a Z-score below 0.1, as shown on the chart, which is underlined by the green box at the bottom. It wasn’t until the gauge soared back over 0.1 that a new rise was verified.
This indicator predicts that Bitcoin may see additional decline in the immediate future, followed by a lengthy period of sideways price activity, based on previous behaviour.
Multiplier based on a two-year moving average
The 2-year moving average multiplier is a final statistic that can help Bitcoin investors figure out when the bear market is over. With Bitcoin’s price, this statistic tracks the 2-year moving average (MA) and a 5x multiplication of the 2-year moving average (MA).
The market entered bear market territory if the price of BTC went below the 2-year MA. An uptrend would begin whenever the price climbed back above the 2-year MA.
On the other hand, a price rise over the 2-year MA x5 line suggested a full-fledged bull market and an ideal moment to grab profits.
Traders can use this statistic to determine when it might be a good moment to accumulate, as indicated by the green shaded areas, or they can wait until BTC clears the 2-year as a signal that the bear market is finished.
It’s vital to note that no signal is perfect, and there’s always the potential of greater downside, no matter how a trader uses the indicators indicated above.