Bearing the Burnt

As far as black swans go, the crypto market has seen enough of them for the present cycle. YouTube is filled with doom, gloom, and predictions of unprecedented economic collapse ahead. Scroll back a few weeks and the same influencers were talking about breakouts and relief rallies. So what exactly is going on and what does the future hold?

Placing the various conspiracy theories, which may or may not be accurate, to one side, it’s clear that no one really knows what’s going on under the hood. Despite this, some people are claiming there’s far more pain on the horizon and other behemoths such as Grayscale are on the brink of collapse.

The simple fact of the matter is that hindsight is 20:20 and the people claiming to be able to predict the next major market shift failed to predict the collapse of FTX until the very last minute. Major moves almost always catch everyone off guard, and the latest one even trapped several hedge funds whose assets are now locked on FTX.

Although token values have dropped, the present capitulation is definitely one of mood and sentiment rather than price. Many people are tired of the deception and sometimes outright criminality of this year’s negative events. From a market cycle perspective, this is the best indication that we’re closing in on the bottom of the current bear market.

It’s not to say things won’t get worse, but it’s always worth remembering that after major negative events markets usually slowly recover rather than get significantly worse. Some may recall the Evergrande debt default that hit the markets hard toward the end of 2021.

At that time the narrative centered around China’s economic collapse and the impossibility of rescuing its housing market. Fast forward almost a year and China has announced a relaxation of rules around lending to help stimulate its housing market. No total collapse appeared, the world wasn’t plunged into a fiscal disaster, and Evergrande is still around. While influencers talked about China, Russia was drawing up plans to invade Ukraine.

An indication of the unpredictability of financial markets is that this article may not age well. Even by next week, Bitcoin may have plunged to fresh lows, the contagion may have taken down another major player, and the crypto bros may all be working at McDonald’s.

This sums up the market perfectly. Even within strong macroeconomic headwinds, we can still get caught off guard and experience yet more turbulence. However, it’s just as likely that prices will chop sideways or even experience a relief rally.

What’s certain is that any change will be fairly short-lived, up or down. The global macroeconomic climate is tough, and although inflation is showing signs of falling in the US it’s still rising in the UK.

Speaking with analysts in Frankfurt it’s clear that no one really knows what the coming months will hold other than uncertainty. As well as being Germany’s financial capital, it’s become home to many more financial service businesses post-Brexit. Everyone mostly agrees that technical analysis is akin to tea leaf reading in the present climate.

Although it’s easy to be swept up in the claims of YouTube influencers it’s worth remembering that many of them have no real market experience. Added to this, their revenue depends on grabbing people’s attention with dramatic headlines and emotive predictions.

The current conditions are without a doubt challenging and can at times be overwhelming. However, as always, we encourage everyone to take a long-term view and relax. Short-term market movements are only useful for traders and when the outlook becomes too bleak it’s often best to take a break and come back later.

Markets always follow cycles, and the lows of a bear market can be particularly challenging to wade through. We’ve been here before and know things will always improve. They may temporarily get worse, but in the long run, they always get better overall.

If this is your first bear market, don’t worry, you’re not alone. We’re here with you each step of the way and no matter what other people may do to harm the space, we’re diligently building a brighter future for DeFi.