Since the news about the war broke out, coupled with the repeated postponement of the expected interest rate cut, the bullish trend that has been rising for several months has finally broken down. Recently, even the Dow Jones, S&P and Nasdaq in the US stock market have fallen, and all major financial markets, regardless of investment targets, are in mourning. Faced with the cryptocurrency market that has fallen for two months, everyone can't help but secretly think of the same thing in their hearts - is the bear market coming?
A market entering a bear market is usually caused by a variety of factors, such as economic recession, political instability, natural disasters or other global events that cause severe shocks such as war. A bear market usually means that supply exceeds demand, and overall investors have reduced confidence in the market, and are skeptical or lack confidence in the future value of the investment target, which leads to large-scale selling pressure. In simple terms, it keeps falling.
Of course, from retail investors to venture capital firms (VCs), every investment unit has its own set of views on what a bear market is, especially since the volatility of the cryptocurrency market has always been relatively violent. But in general, a bear market means that the overall market of a certain investment market has fallen by more than 20% from its previous high and has continued to fall for more than two to three months.
So… is the cryptocurrency market in a bear market? Here are some indicators to watch for
On-chain funds - Total locked value (TVL) and stablecoin issuance
Because of the open and transparent nature of blockchain, there are many real-time on-chain analysis tools available, unlike traditional financial markets where sometimes the ups and downs are unclear. Below we briefly introduce several tools and indicators that can help judge market conditions.
Total locked value (TVL)
TVL in cryptocurrency is the "total locked value". It is an indicator to measure the total value of crypto assets locked in smart contracts of DeFi projects. It counts the amount of assets (such as Bitcoin, Ethereum, stablecoins, etc.) deposited by users into smart contracts as margin or funds for activities such as lending, trading, mortgaging, or providing liquidity. The total TVL is calculated by adding up the TVL of all DeFi projects on the blockchain, which can be used to observe the activity of funds on the chain.
As of (5/2), the overall TVL on the chain is around 94 billion US dollars. Compared with Bitcoin’s high point of nearly 97 billion on March 14, the overall TVL loss is not as drastic as the drop in Bitcoin prices. In terms of trend, it has grown slightly, and is still 2.4 times the previous bear market low. It can be seen that the main reason for this decline is not the flight of funds on the chain. The market did not experience a cliff-like escape like the Luna explosion and FTX bankruptcy at the beginning of the last bear market.
Comparing this with the TVL of nearly 180 billion at the peak of the 2021 bull market, we can see that although the price of Bitcoin has broken through its previous high, the TVL on the chain at the new high is only half of the previous high TVL. Perhaps the real bull market for the entire blockchain may not have arrived yet?
Stablecoin market capitalization and issuance
Stablecoins, which are pegged to the US dollar or other national fiat currencies, are the most commonly used value storage medium on the blockchain. Therefore, the current status of the cryptocurrency market can be observed from the issuance and total market value of stablecoins. An increase in issuance usually represents an increase in demand and the influx of off-market funds; and when the overall cryptocurrency price falls, many investors will sell cryptocurrencies for US dollar stablecoins to realize profits or temporarily hedge risks.
The market value of stablecoins has gradually increased since the market rebounded last year, and the total issuance volume has continued to increase. The overall stablecoin market value has grown by 30% from the low point (from 124 billion US dollars to 160 billion US dollars). From this point of view alone, the market may not be in a bear market.
Exchange Funds
The stock of funds in centralized exchanges refers to the total amount of funds deposited by users in major centralized exchanges, including users' cryptocurrency deposits, funds in transactions, and funds temporarily stored in exchange wallets. It is one of the indicators that can be used to observe market sentiment.
If the amount of funds on the exchange increases significantly, it may mean that investors are more optimistic about the market and are more willing to invest funds in the exchange for trading; conversely, if the amount of funds decreases significantly, it may mean that investors are more pessimistic about the market and are more willing to transfer funds to safe storage targets, that is, whether they have cashed out and left the cryptocurrency market.
Even though the price of Bitcoin has continued to decline since the recent high on March 14, the capital stock of four of the top five exchanges is in a positive inflow situation. For the largest exchange, Binance, the recent capital stock is also in a similar range of fluctuations, and there is no obvious outflow during the bear market.
In terms of exchange trading volume, although the trading volume in April was not as high as the record high in March, it was still significantly higher than the previous months (January to February) this year.
Where did the money that drove Bitcoin's rise come from? Has it left? - BTC ETF
If we only look at the calm on-chain data, as an on-chain player, although we will also face asset withdrawal, we probably won’t feel that the market has entered a bear market again. The remaining key factor that needs to be examined is one of the new variables in this cycle - Bitcoin spot ETF.
Since the Bitcoin spot ETF opened on January 11 with a trading volume of 4.6 billion on the first day, in the following four months, except for the continued selling pressure of GBTC, the Bitcoin spot ETF was in a state of positive inflow on most days, with a total inflow of US$11.7 billion.
However, we can see that since April, the overall trading volume of Bitcoin spot ETFs has gradually slowed down, and the inflow of funds has dropped significantly. The outflow caused by GBTC has begun to exceed the inflow. Last week alone, $500 million flowed out, and the outflow on May 1 hit an all-time high, with $560 million flowing out in a single day.
This wave of rise, mainly driven by ETFs, can be roughly explained as follows: Institutions representing the US stock market came, but they left (partially). And if future inflows cannot counteract outflows, the price of Bitcoin may continue to fall due to the outflow of GBTC to a stage where the selling price is not cost-effective.
If we haven’t really entered a bear market, what should we do in the future?
From this we can see that the Bitcoin spot ETF has indeed started a wave of growth, but it turns out that most of the funds that have poured into the market have not (cannot) truly entered the blockchain to be active due to the need to maintain their status as collateral. This new form may change the future interpretation of the bull and bear cycles.
But it doesn’t mean that the situation on the chain looks good and it doesn’t matter if it falls. As the market of cryptocurrency, Bitcoin is often a domino effect. This weak trend will not only affect investors’ confidence, but the downward performance will also obviously drag down other currencies, even projects that have just launched TGE.
Whether the market will go down further and enter a real bear market remains to be seen, but as for how to participate in the future market, should we take the opportunity to liquidate and flee or buy at the bottom and expand our positions? It is recommended to pay attention to the following six factors:
Changes in the global macroeconomic environment: Global events will affect all financial markets, such as changes in the situation of the Ukrainian-Russian and Israeli-Palestinian wars, or the progress of the US Federal Reserve's interest rate cuts. Once the war slows down or the possibility of interest rate cuts increases, the proportion of funds flowing into risky asset markets (such as cryptocurrencies) will usually increase.
Analysis of expected prices by venture capital firms: If you have been tracking blockchain trends for a long time, you probably know that well-known firms such as Bernstein, Standard Chartered or JP Morgen will regularly publish relevant analysis reports. You can observe whether these firms have made significant revisions to their previous analysis of the market outlook in the near future, and use their research capabilities to determine market trends.
Financing status of the cryptocurrency industry: In the past, one of the most obvious characteristics of the cryptocurrency industry entering a bear market was that the financing of projects was in difficulty, and the number and amount of financing were greatly reduced. However, recently, we can still see a number of financings of nearly 10 million or 10 million yuan. From the heat of the financing market, we can more or less see the confidence of institutions in the future market.
The trading situation of the options market for the future market: As the name suggests, the options market is a market for directly trading future prices. Although both long and short positions may be liquidated when a big market trend occurs, the total amount of contracts in various aspects can show some investors' views on whether the market will rise or fall in the future.
Focus on narratives and ecosystems with potential: If the market regains its heat, funds will usually flow to narratives and ecosystems with (hype) potential, such as oil refining, BTC ecosystem, AI and fan coins. How can ordinary people grasp the key narratives at the first time? It's very simple - follow me, I have caught several popular tracks in the past!
Later, I will bring you analysis of leading projects in other tracks. If you are interested, you can click to follow. I will also organize some cutting-edge consulting and project reviews from time to time. Welcome all like-minded people in the cryptocurrency circle to explore together.
