It has been a long time since Bitcoin’s all-time high of approximately $20,000 at the end of 2017. The prevailing bear market has resulted in a drawdown of over 80 percent on the price of Bitcoin, with one recent low nearing the $3,000 mark and seriously testing the patience of even the most die-hard HODLers.
While many crypto investors have lost small fortunes, it can be argued that the crypto market as a whole is now much healthier and stronger than it was when cryptocurrency prices were breaking record highs on a daily basis.
In this article, we explain why the current bear market (commonly referred to as crypto winter) is what crypto needed, and we also explain how to prepare for the next bull run because it will almost certainly be different from all previous bull runs.
Bears Versus Bulls
All this talk of bears and bulls can be very confusing if you’re new to Bitcoin and crypto in general.
In short, bears are people who sell their crypto because they believe that prices will go down, while bulls are people who buy crypto because they believe that prices will continue to climb up.
When there are more bulls than bears, we’re talking about the so-called bull market, which describes an economic environment that is growing and optimistic. Just like when a real bull thrusts its horns up into the air to throw an opponent as high as possible, bullish investors use their hard-earned money to make price charts fly.
The so-called bear market, on the other hand, is characterized by falling prices—whose charts look like a bear swiping its pawn downward to attack an opponent—and typically shrouded in pessimism.
When crypto investors lament that bears are keeping prices low, what they really mean is that more people are selling than buying. In other words, supply is greater than demand.
They’re certainly not saying that there’s some malicious group of investors who conspire with one another to undermine the future of crypto.
From the start of 2017 until the very end of the same year, the entire crypto market was incredibly bullish because prices of virtually all crypto projects were climbing at unprecedented rates and showing no signs of slowing down.
When it finally did slow down, many people, most of which were very new to crypto, instantly lost their optimism and decided to sell and, in many cases, leave crypto for good.
The Bear Market Is What Crypto Needed
It may sound strange to suggest that falling prices and a general lack of optimism have been good for crypto, but there are several compelling arguments to support this statement.
Bad Players Got Weeded Out
It’s almost hard to believe just how many shady crypto projects managed to secure millions of dollars in funding in 2017. The ICO (Initial Coin Offering) craze of 2017 is now fortunately over, and most of the bad players that came with it got weeded out.
“A token like Verge, built on nothing more than vaporware, hype, cringe partnerships, and stickers on rented lambos are what needed to go away before capital could consolidate and find its way back to projects that are serious and legitimate,” one crypto hedge fund manager is cited saying. “Bitcoin, Ethereum, Monero, and Stellar—these are teams that are legitimately attempting to build something that lasts, and you can see money flows moving in that direction.”
Another excellent example of a crypto sham is Bitconnect, an open-source cryptocurrency that’s estimated to have resulted in customer losses of more than $1 billion.
It’s safe to say that there is now no room of the likes of Bitconnect in crypto, because it takes a lot more to succeed than an aggressive marketing strategy and lofty promises—it takes a real working product that solves an actual problem.
Real Products Are Thriving
“So, this is the crypto winter, no doubt. But a friend of mine, Brian Armstrong, who’s the CEO of Coinbase, said this is the spring of crypto innovation,” stated Alexis Ohanian, one of the co-founders of Reddit, in an interview about the current crypto bear market.
“And what he means is, yes, the prices are depressed. The speculators have fled. And that’s great because the people who are now building on crypto are true believers. And they’re actually builders. They’re actually building the infrastructure that it’s going to take to really make this happen.”
One example of a thriving crypto project is Bitcoin and its nascent Lightning Network, whose purpose is to exponentially increase the capacity of the Bitcoin network by adding another layer to Bitcoin’s blockchain and enabling users to create payment channels between any two parties on that extra layer.
Veteran investor and renowned bitcoin bull Tim Draper even believes that Bitcoin’s Lightning Network will make cash obsolete because everyone except for criminals will prefer the security, transparency, convenience, and speed of Bitcoin payments.
Regulations Are Catching Up
The aggressive price drop that ended the biggest bull run in Bitcoin’s history had a lot to do with aggressive enforcement by the SEC (The U.S. Securities and Exchange Commission).
Many developers were forced to pause their projects, retailers had to stop accepting crypto payments, and even individual crypto users suddenly realized that there are real-world consequences to using digital currencies.
The problem with the initial wave of crypto regulations was that they were anything but conducive to innovation. They created an atmosphere of fear and uncertainty, fueling speculations that Bitcoin and other cryptocurrencies might be banned.
The current bear market has given regulators time to catch up, and that’s great news for all involved parties because a mature regulatory environment is conducive to innovation.
Without proper regulations, crypto projects will never be respected and capable of disrupting established power structures and industries, such as banking, retail, and others.
How to Prepare for the Next Bull Run
Even though the current crypto winter is not over yet, signs are starting to appear on the horizon suggesting that crypto spring might be around the corner.
According to researchers at Canaccord Genuity Capital Markets, the future of Bitcoin is bullish.
“Looking ahead, if Bitcoin were to continue following the same trend as in the years 2011-2017, the implication is that Bitcoin would be bottoming approximately now and would soon begin climbing back towards its all-time high of approximately $20,000, theoretically reaching that level in March 2021,” say crypto analysts Michael Graham and Scott Suh.
But just because Bitcoin and other cryptocurrencies could soon be making new records, it doesn’t mean that the next bull run will be the same as the last one.
In the past bull run, prices went up because everyone wanted a piece. The hysteria kept pushing prices up and up, and those who played the market right got out with a small fortune.
When the next bull run inevitably happens, it’s important to keep in mind that whales (the big money players that show their hand in the crypto market) will try to make profit from every single price movement, making it much more difficult for small investors to time their moves right.
The best strategy for crypto investors who would like to join the next bull run is to spend the rest of the crypto winter studying the history of the crypto market, learning tried-and-true investment strategies, and perhaps even exploring trading automation using state-of-the-art machine learning techniques.
It’s completely understandable that investors want to see the value of their assets increasing, but healthy markets can’t increase exponentially forever without eventually bursting like a soap bubble.
The current bear market has had a cleansing effect on the crypto market as a whole, ridding it of bad apples and giving it much-needed time to stabilize and mature. As a result, it produced an environment where crypto can finally live up to its full potential, banking the unbanked and enabling disruption across industries.
With the next bull run possible right around the corner, smart investors are already getting ready to make their move so they don’t miss out on an investment opportunity of a lifetime.
Josh Lehman, Co-founder of Digital Surge
Josh is the co-founder of Digital Surge – Australian Bitcoin Exchange which provides a fast and easy way for Australians to access cryptocurrency. He has spent over 10 years working in the IT industry and knows first-hand that technology doesn’t need to be complicated. It is their mission to simplify access to cryptocurrency and to educate and support their customers throughout their journey.