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Are cryptocurrencies in bear market?

Bear market is a name for a market during which the price of the given asset is falling down for a longer period.

The reason for this name is pretty simple and has been around for dozens of years. Bear, as the animal, has the top-down attack, in comparison to bull, which is attacking from bottom up. Thus when the price is rising, we are typically talking about bull market.

As of now we see cryptocurrencies falling and nothing points to the fact that this should change. Bitcoin, as the main cryptocurrency is falling, so is Ethereum or Cardano. Is this only a part of this cycle or is it a bigger problem?

Fed and stock market are key

Cryptocurrencies are not the only asset class that is now suffering from drawback. The stock market is doing the same, so are indices or major commodities. And Fed might be the main factor why this is happening. This central bank has several tools, through which it can directly affect the markets in a significant way. These tools are for instance:

  1. Interest rates
  2. Quantitative easing or quantitative tightening

These are direct tools that the Fed can use for stimulating the markets. After the March of 2020, when the markets drastically fell and the whole world was in the quarantine or lockdown, Fed has stimulated the markets by sending the interest rates to zero. Moreover, it started pumping the markets through 120 billion dollars a month. It tried to strengthen the economy through different stimuluses.

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TradingView Chart

Bitcoin 1D chart, Source: Author’s analysis, tradingview.com

All of this “helped” to move inflation to double digit numbers and the Fed is now in drastically different position. The interest rates need to be increased and the money that were pumped into the markets need to be taken away, so that the inflation can drop back to 2 %, which is traditionally the target.

These are the main reasons why the markets are falling and so are cryptocurrencies. Obviously, there are various other reasons, but these are by far the most important once. If the Fed continues with the current mindset of pushing the inflation down, we can expect that the cryptocurrencies will continue in this trend.

TradingView Chart

Ethereum 1 day chart, Source: Author’s analysis, tradingview.com

Jakub is a crypto trader and founder of Trader 2.0 project, which helps hundreds of traders from central Europe to understand cryptocurrency trading and its challenges. Jakub not o...

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