When Will It End? 2022 Crypto Winter (Bear Market)

While 2021 bull market was great for many altcoins, let’s be honest, we knew the growth was unsustainable. When the most viral projects were JPEG NFT, half-baked metaverse projects, and unsustainable algo stablecoin (yes, I am talking about UST), I knew the bears would take over the market.

All the signs were there in Q4 2021. Many of the trending altcoins were not fundamentally strong, and they started to go down by November-December. At the same time, the Fed also already hinted at reducing its balance sheet.

The combination of rapid growth and macroeconomic events led to the 2022 crypto winter. I believe the 2022 bear market has been caused by a mix of different events and that’s why this year has been disastrous for the crypto industry.

The whales started to dump the market before Christmas last year because they feared the Fed would go aggressive to fight inflation. And as usual, everybody else followed their steps.

It caused a chain reaction, and cryptocurrencies entered crypto winter as a result and might continue to go lower for a while. To compare with the 2018 crypto winter, I believe we are doing even worse this year. At least we had a couple of good months in 2018.

Now? Apart from mid-late March and early January, we never had any positive weekly price action.

Many crypto traders are getting skeptical, and I know some traders that even shorted the crypto market in futures. The entire crypto industry is in despair mode. Many big companies such as Coinbase and Gemini cut their workforce and even rescinded new job offers.

All bad things considered, there are still many reasons to believe that the current market situation will eventually get better. First of all, let’s talk about macroeconomic events. Everybody can see that the current crypto market is tightly correlated to the US stock market.

In fact, you can also say macroeconomics was the most significant factor that ended the crypto bull market. When the Fed raised the interest rate to combat inflation, big traders reacted by dumping the stock market.

When the stocks got dumped, highly volatile assets like cryptocurrencies were seen as “too risky” by the same traders and investors. That’s why cryptocurrencies got dumped as well. Directly or indirectly, the fed policies caused the crypto dumps.

Above I mentioned how multiple factors (and not just one particular factor) caused the 2022 crypto winter. There are both external and internal factors that caused the current bear market in the crypto space, but I believe the Fed policies regarding interest rate has been the primary factor with the most impact.

Besides the interest rate hikes the Fed is also ready to reduce its $9 trillion balance sheet. The balance sheet reduction would create even more negative effects on the market.

As you can see below, the Fed bought over $4 trillion in assets (primarly U.S. Treasurys and mortgage-backed securities) after the COVID-19 pandemic. Now they want to sell some of those Treasury securities and mortgate-backed securities.

The current aggressive policies, however, wouldn’t last forever. Once inflation has been able to be controlled, the stock market will react positively, and the Fed policies will reverse. And as long as crypto market cycles follow the trends of the stock market, we will also have the market reversal in crypto when things eventually get better out there (i.e., when inflation has been slowed down).

Apart from macroeconomics, it’s also important to note that the next Bitcoin halving might play a huge role in the market cycles. When the first Bitcoin halving happened on November 28, 2012, the impact was not really positive in the first 12 months afterward. 

But then, from September to November 2013, the price exploded from $137 to $1,154. The crypto community said that was the impact of the halving one year earlier.

After Bitcoin’s meteoric rise in 2013, it entered a long period of the bear market in 2014. After a boring sideways market in 2015, the market got exciting again in 2016. Guess what happened? 

Well, the second halving happened on July 9, 2016. Just like the 2012 halving, the price action impact was not immediately felt. BTC price only took off in 2017 although it went up very high (from below $1,000 to almost $20,000). 

Once again, the crypto community credited the 2017 bull market to the halving event in July 2016. Many altcoins rose and became popular during this bull market period.

And again, just like before, Bitcoin entered another bear market after it peaked in December 2017. 2018 was known as a very long period of crypto winter. The entire year of the bear market at that time made a lot of people lose their faith in the crypto industry.

However, the market cycle changed once again two years later after the third BTC halving took place on May 11, 2020. Unlike the previous halvings, this time, the halving effect was immediately felt in the price action. Bitcoin went up to around $30,000 by the end of the year 2020, and it kept going higher in 2021. 

At its peak, BTC was trading around $67,500 by November 2021. Despite some differences with 2012 and 2016 halving, the narrative remained the same. 2020 BTC halving caused the bull market to happen in 2020 and 2021. 

Well, to be fair, Bitcoin was already going up slowly in 2019, but it was very slow. 2020 and 2021 were seen as the real bull market where many new altcoins rose to fame and NFTs finally became mainstream.

Interestingly, the history of BTC halvings hinted at the same market cycle loop that might be repeated once again in the future. 2022 has been hard for the crypto industry, and many analysts have started to link it to 2018 bear market, and they also predict the current market will only be reversed by the 2024 Bitcoin halving.

If you believe it’s not logical for price action to always repeat itself around BTC halvings, you might need to think about it from a different perspective. While the halving itself might not literally affect the price action that much, many traders speculate by buying Bitcoins after the halving event. 

Thus, it creates a self-fulfilling prophecy (BTC halving => traders speculate price will go up => price goes up because of these traders’ speculation => repeat the cycle).

Above I mentioned how both the Fed policies and Bitcoin halving had huge roles in Bitcoin price action. Now here comes the most important question, “when exactly will the market reverse?”. Do we really need to wait until 2024 halving?

Well, to answer this question, we need to think of several different scenarios before we talk about how to manage our risk properly.

It’s important to note that one of the most realistic scenarios that can happen here will depend mostly on the Fed interest rate policies to combat inflation. At the moment, inflation is pretty bad all over the world, and the Fed will not stop until inflation has slowed down.

According to CNBC, the Fed might be willing to risk recession in order to fight inflation. This means the Fed will go even more aggressive in raising interest rates, and we can expect both the stock and crypto market to go even lower.

At the end of the day, it’s smart to try to predict market trends based on macroeconomics. After all, we can also credit the 2020-2021 bull market to the money printing policies of the government. It works both ways.

Many different “experts” and “analysts” have different opinions, but I personally think it’s wiser if you don’t open any position before inflation actually slows down. You should only open your long positions when the signs are already there in the first place.

I am highly confident the Fed will start another QE (Quantitative Easing) sooner or later, especially if we go into a deep recession. It’s only a matter of when (I predict we will have another QE by mid-late 2023 or early 2024).

BTC halving is another possible cause for future market reversal. Just like what I wrote above, halving events so far have had tremendous impacts on crypto market cycles. It’s quite possible that this time it won’t be different.

It’s also possible that inflation will slow down in 2024, and the QE will start again in the same year (which coincidentally the same year with the next halving). In this case, we might see 2022 as a bearish year and 2023 as a year of sideways market. 2024 might be the return of the bulls.

Keep in mind that I personally do not think Bitcoin halving would literally affect the price action, but it is mostly because of the self-fulfilling prophecy that affects traders’ psychology to buy Bitcoin after every halving.

I think this scenario is highly likely. If the bull market truly happens after 2024 halving, expect many new altcoins to rise and make huge gains in 2025.

This is also another realistic scenario. Some mainstream media analysts believe everything is already priced in. They believe the stock market will reverse anytime soon because the current losing streak was mainly caused by “overreaction” and thus the market will rally before inflation slows down.

The stock market might return to bull market months before the actual news that suppose to trigger the reversal. For example, if everybody believes inflation numbers would go lower by January 2023, they would buy blue-chip stocks 4-5 months prior because they don’t want to miss the rally, and therefore the entire market will rally because of this premature expectation.

The crypto market itself has a very good chance to go up if the stock market can maintain its market reversal. That being said, I think the worst is still yet to come, and as usual, market cycles are usually longer than what many people seem to believe.

Conservatively speaking, the bear market will take a while and it won’t end anytime soon. But of course, anything is possible at this point. Let’s see where we go next.

At the time of this writing, BTC price is at $20,211 (June 22, 2022).

You may have heard of what happened recently. Celsius Network, a very popular crypto lending platform, froze all withdrawals, swaps, and transfers between accounts. Everybody speculates Celsius simply doesn’t have enough liquidity to cover a massive amount of withdrawals at the same time. The market reacted, and Bitcoin price fell even further. 

It’s likely for BTC price to recover a little bit in the upcoming weeks but the upward movement wouldn’t be enough to end the bear market. I suspect the ultimate bottom would be somewhere around $10,000-$13,000 before we enter the sideways market and then bull market in 2023 or 2024. However, once again, anything is possible.

Even though I am highly confident we will eventually return to the bull market, it’s very important to note that risk management is much more important than price prediction itself. Remember that past price action cannot always help you to predict the future.

It’s possible that the current bear market will take even longer time than my predictions above. You must have a mindset that it’s possible that the bear market might keep going until 2025, 2026, or even 2030.

This is why risk management is extremely important. When it comes to crypto trading or investment, you must see everything from risk:reward ratio (R:R ratio). It means you need to have plans for when to cut your losses, when to take your profits, and when to stop trading.

For me, the best R:R ratio is if the profit possibility is at least 2x of the risk. For example, if you open a BTC/USD long position at $20,000, and you will cut your loss if it goes down to $10,000, that means your profit target should be at $40,000 or above.

It helps when you have multiple exit plans (i.e., you liquidate 40% of your positions when the price reaches a certain target, and you liquidate more and more when the price keeps going higher).

Keep in mind that the number one rule in investment is to have proper exit plans for both losses and profits. Do not just buy and HODL forever. Even if you think some cryptocurrencies are worth to HODL forever, you should only do that with a small amount of your investment funds.