I thought I would share my thoughts on the current situation by playing devil’s advocate. I will lay down bearish arguments followed by bullish arguments. I will then try to extrapolate some conclusions that will help better plan our investment strategies from now on.
# Bearish case—Reasons why there’s still some pain ahead
Crypto bear markets usually take a year to reach the cycle bottom and consolidate from there. This cycle peak happened in November, which means that some downside volatility could still occur. Furthermore, massive rallies are historically triggered before the halving, which won’t happen before April 2024.
**The macroeconomic environment is still uncertain**
Everyone following the crypto market knows that it is highly correlated with the stock market, which isn’t looking great right now. The major indexes are in a bear market, the war in Ukraine, the economic sanctions against Russia and the supply chain bottlenecks can still bring up the price of commodities such as oil, gas, wheat, soybeans, etc., forcing central banks to continue their hawkish stance by raising interest rates, which will inevitably be bad for global markets as well as crypto.
**Bitcoin dominance is still low**
In the 2018 bear market, Bitcoin dominance plummeted during the first few months of the collapse but hovered around 60% during the December 2018 cycle bottom only to further increase as the accumulation phase went on. Today, Bitcoin dominance sits at around 44% and some altcoins still outperform Bitcoin and Ethereum. Furthermore, Dogecoin and Shiba Inu still rank respectively 10th and 16th by market cap. This shows that maximum capitulation likely hasn’t been reached yet as some people still invest in meme coins hoping for quick gains.
**We might see other crypto black swan events**
The collapse of Terra Luna and Celsius might just only be the beginning as some crypto-related projects struggle to find some liquidity and investors are leaving the crypto space, further pushing crypto asset prices to the downside.
# Bullish case—Reasons why we’re at the bottom
**Technical buy signals are flashing**
The weekly MACD is at an all-time low. Usually, when the weekly MACD is at such a low level, it’s a great opportunity to buy. Also, the monthly MACD is also at an all-time low. Furthermore, a lot of Bitcoin models are flashing strong buy signals. For example, the rainbow chart is at the “basically a fire sale” level. Historically, buying Bitcoin at these levels has led to massive profits in the long run.
**Fear is high**
Even though I said earlier that Bitcoin dominance is still low and some meme coins still rank a bit too high for my comfort, there’s no denial that the overall sentiment in the cryptocurrency space is massively bearish. The fear and greed index is as low as it has ever been and even the most obnoxious moonboy influencers now all agree that we’re in a crypto winter.
**Inflation might be reaching its peak soon**
It might be too early to make this claim and I’m fully aware that it can age like milk, but I think it’s not too far-fetched to consider the possibility that the macroeconomic situation might be cooling off a little, at least in the short term. China has eased its lockdowns, Putin has concentrated his war effort to the Donbas region, and commodities such as oil, gas and corn are currently below their ATH and might be further decreasing in the next weeks.
# OK, so what should I do from now?
In order to plan your strategy from now, it is important to look at what we know during these uncertain times. Even though every bear market/crypto winter is different, I think it’s a good idea to look at what we know in the crypto space and in the broader markets:
· The macroeconomic situation is still in a bear market and highly uncertain, which mean that we will see a lot of volatility in the upcoming month. Relief rallies and more downside pain are to be expected.
· Strong technical buy signals are flashing in the crypto space if you are a long-term investor.
· Cryptocurrencies are high-risk assets who typically don’t perform well in a risk-off environment. They also don’t perform well when the stock market is in a downtrend.
· Crypto winters last a long time; we are very unlikely to reach new ATH in the short term. History has shown that further downward momentum can be expected in the coming months before reaching a consolidation period.
· Historically, BTC dominance tends to increase during bear markets and skyrockets during the beginning of the new bull market, before the halving.
· Timing the exact bottom of a bear market is a very, very hard feat to do.
Here are strategies based on four different investor profiles.
*“I’m hodling no matter what. I have diamond hands and crypto is only a small fraction of my portfolio.”*
History has shown that hodling through bear markets is one of the best long-term strategies. If you think you can handle further downward momentum without flinching, then keep hodling. Your diamond hands will surely reward you in the next few years if you own Bitcoin, Ethereum or other altcoins with strong fundamentals.
*“I’m still hodling, but I’m deeply in the red and starting to panic. I wasn’t expecting the crypto market to go that low!”*
In that case, you might want to review your strategy in order for you *not* to panic sell at a loss in the future. Considering that Bitcoin tends to perform better than altcoins during bear markets, it might be wise to trade some alts to Bitcoin, especially since BTC dominance is still low at the moment. Also, if you have invested more than you could afford to lose, you might want to rethink your strategy before the next bull market. Planning a short-term exit strategy during the next relief rally in order to mitigate your risks might be wise.
*“I’ve panic sold/my stop loss was triggered. Now what?”*
In that scenario, I think the worst thing to possibly do is to panic buy at a higher price during the next short-term relief rally, which is likely to happen if we consider the very low RSI. Bear market rallies and dead-cat bounces are likely in the current environment. Remember the broader picture: crypto winters can last multiple years and Bitcoin’s next halving is in April 2024. There will be plenty of buy-back opportunities. A lot of strategists are saying that being cash heavy is a good thing in the current environment, so use that to your advantage. DCAing back into Bitcoin during the next year-year and a half might be a wise strategy, while keeping an eye open to invest a little bit more during bigger dips. Personally, I would focus on Bitcoin in the beginning, as it historically outperforms altcoins until after the next bull-market rally.
*“I’m new to the crypto space and I’m looking for great projects to invest in.”*
Despite the overall negative sentiment, bear markets are a great time to start dabbling into crypto, considering most people tend to enter crypto late during the bull market. DCAing in Bitcoin right now is a good strategy, while researching for some good altcoin projects to invest in when the macroeconomic environment is more favorable. Remember to invest only what you can afford to lose and be ready for some volatility.
What do you think of this analysis/strategy? Should I post more or should I shut the hell up because I don’t know what I’m talking about?