December 6, 2021

Is This Only a Correction or the Beginning of the Bear Market?

Dec 6, 2021

Introduction

Fed tapering, Evergrande default, Omicron… For weeks, we have been warning that significant macroeconomic headwinds were starting to blow, threatening to crash the stock and crypto party (at least temporarily).

With the amount of leverage and froth across all asset markets, the threat of a significant liquidation-induced sell-off was rising by the day – and that’s precisely what we got last Friday in both the stock and crypto markets.

Is the worst over for now, or should we expect more downside? That, of course, is the big question hanging in the air.

By the way: If you wish you could have gotten updates on the unfolding market meltdown this weekend, go ahead and follow Elliot, Daton or me to get news and real-time perspectives from the team.

This Is Fine Its Fine GIF - This Is Fine Its Fine Everything Is Fine GIFs

Market Watch

It’s clear that opening up Blockfolio to check one’s portfolio hasn’t been pleasant for crypto investors in the last few days – unless you were prepared for the crash and are now looking forward to new opportunities.

Ansem🃏💎 @blknoiz06

"max pain is up" - someone who has 0% of their portfolio in stables

Santa-iago R Santos | #9159 🦇🔊⚡️ @santiagoroel

Crypto market pendulum swings to extremes as emotion hijacks rational thinking. If you've been here for a while & still get overwhelmed by market swings then you haven't learned much. Go back & scrutinize your process (position sizing, concentration, illiquidity, time preference)

In the last days and weeks, crypto prices have been rising and falling in lock-step with the stock markets: Sharp declines, bounces, and further downside – almost everything happened in tandem.
We can in fact go back and compare the price action of Bitcoin and the S&P 500: They have been strongly correlated for months now… Hence, even though we don’t like it, crypto investors are HIGHLY dependant on what is going on in the macro world.

As you can see in the chart above, the S&P 500 (and Bitcoin) is sitting on top of important support levels on the daily time frame right now. So, the chance for a bounce this week is relatively high – the question is: What comes after?
With the lingering fear catalysts in macro land, especially surrounding the Fed’s next decisions, it’s certainly advisable to keep your risk management in check. If the Fed really sticks to its faster tapering pace, then yes, we could be in for a bloody end of the year.

Girolamo Pandolfi da Casio ditto Carlo Dossi Erba @INArteCarloDoss

Moderate inflation in a sustained growth environment is good for stocks. Sticky high inflation in a slowing growth environment is terrible for stocks, especially if end of cycle with high multiples, as margins get crushed. Not sure who needs to hear this.

Lyn Alden @LynAldenContact

@BitcoinTina I don't think they will be able to hike much, but am not ruling out the possibility of some 25bps hikes either before the market makes them stop. Recent market behavior combines initial reaction of Powell remarks plus omicron. Kind of noisy to form a sure view on imo.

At the same time, extreme fear like we see currently often marks the best buying opportunities in hindsight. Since we can’t perfectly predict price action going forward, a “DCA approach” seems appropriate, especially given the uncertain climate. That means: Buying slowly on dips and accelerating buys with increased panic in the market – precisely the opposite of the profit-taking we did on the way up…

Have We Entered a Bear Market?

Of course, the question on everybody’s minds is: Are we only experiencing another bull market correction, or is this the start of the decline into a brutal bear market? What helps to answer this question (apart from technical analysis, which at this point indicates that we still could be in a bullish macro structure), is a look at both macro and crypto-internal metrics:
When it comes to the macro picture, we have already outlined that uncertainty is high, and what we see in the stock markets at the moment could mark the beginning of a multi-month bearish trend – with a strong spillover effect into crypto.
However, when we look at on-chain metrics, we haven’t yet seen the typical signs that mark the beginning of a full-fledged bear market – specifically, whales and long-term holders starting to sell en masse, which would mean game over for the crypto bull cycle.
However, looking at on-chain metrics after last Saturday’s crash, we can see that long-term holders haven’t been fazed much, and almost exclusively short-term holders have panic-sold. This is generally behavior we would expect in a bull market correction and not a bear market.

TXMC @TXMCtrades

Short-Term Holders are taking a ton of abuse. First, they realized their highest profits since March after the second ATH break in November... ...followed immediately by dumping their paper bags and realizing their worst losses since July. Almost no one else is spending here.

glassnode @glassnode

Assessing the $BTC Sell-off🧵: #Bitcoin holders realised the third largest on-chain capitulation in history over the weekend, with over $2.18B in realised losses. This compares to: - $1.38B in March 2020 - $2.65B in May - $3.45B in June 1/4 Live Chart: glassno.de/3EzM8os

glassnode @glassnode

Question is, which cohort of #Bitcoin holders were realising these losses? If we look to Long-Term Holder supply, we can actually see their total holdings are unchanged over the past week This makes it more probable it was recent buyers 2/4 Live Chart: glassno.de/3pBlhlE

glassnode @glassnode

The Short-Term Holder SOPR metric on the other hand shows very significant losses were realised by this cohort. Spending by STHs was the least profitable it has been since the $29k lows set back in July. 3/4 Live Chart: glassno.de/31nLs7j

glassnode @glassnode

However, #Bitcoin exchange inflows only hit 2k and 3.2k $BTC. Whilst meaningful, it is small in comparison to May >10k $BTC With almost 25% of futures contracts closed, we can determine that a leverage flush out is the most likely sell-side driver. 4/4

glassnode @glassnode

#Bitcoin futures markets have experienced a significant deleveraging event, with over $5.4B in open interest closed yesterday. Total futures open interest declined from $22B to $16.6B in one day, a decline of 24.5%. Live Chart: https://t.co/SMzyKCPWdX https://t.co/CKXW275Y7r

_Checkmate.btc 🔑⚡🦬🌋checkonchain.com🌋 @_Checkmatey_

What Will is saying here is just look at supply dynamics, network utilisation and make an assessment on whether it is constructive or not Cycles/bull/bear are limiting If only there was a tool to assess the factual supply and demand patterns on the #Bitcoin ledger....if only...

Will Clemente @WClementeIII

Think we need to get rid of this binary concept of traditional Bitcoin Bull/Bear markets. Too many people trying to project the past onto the future, instead of imagining what the future looks like.

Will Clemente @WClementeIII

Have talked about this for a while but really think there’s a good chance 4yr cycles are over. Why? The type of market participants we now have. Could very well see rounded tops/bottoms from now on. Invalidation would be having a blowoff top, would then expect prolonged bear.

Benjamin Cowen @intocryptoverse

As I have said since 2019, the only “four year cycle” for #Bitcoin was the last one. It makes absolutely no sense to assume that Bitcoin will repeat itself exactly every 4 years

To sum it up: At this point, not much indicates that we have entered a crypto bear market. The fact that certain subsectors within crypto are showing strength vs. Bitcoin could be a sign that the market is not ready for full-on bear mode yet.
However, the risk of a dark winter is certainly there, given the uncertainty in the macro environment. We have to keep our eyes peeled, especially on the Fed’s actions!

Santa-iago R Santos | #9159 🦇🔊⚡️ @santiagoroel

Bear markets sharpen the mind. If you don’t have a clear, well-developed thesis, a wild price swing will have the rug pulled out from under you. Fwiw - don't think we're in a bear but these micro market cycles have the same effect

How to survive crypto winters and other bear marketsThe crowd is delusional. What to do about it.obviously.substack.com

Getting Your Hands Dirty With ZK-Rollups

While we know that ZK-Rollups will likely be the future of Ethereum (and the overall crypto space), there are not many ways to bet on this emerging trend yet. Yes, you can invest in DYDX or IMX, both ZK-Rollup-powered projects built on StarkEx.
But what we are really looking for is a chance to invest in the first fully-fledged EVM-compatible ZK-Rollups, on which the next generation of DeFi and NFT protocols will be built. Since these aren’t live yet / have a token, we must be attentive to spot potential airdrops or projects launching on StarkNet & ZkSync early (e.g., the “Uniswap on StarkNet”).
Odin-free.eth has done a great job summarizing everything currently going in the ZK-Rollup space and how you can “farm” potential airdrops (these are just a few Tweets of his thread, feel free to check the whole thread here):