It’s been a tough couple of weeks for everyone, with the market down by nearly 60% from it’s all-time high in December. However, this is hardly an indication that the markets are turning around or that we are nearing a bottom. We know that this feels like a tough time for investors, but this is not something new.
Previous bear markets have had similar patterns of price action and on-chain activity such as this one, and it’s important to keep in mind that these are recurring patterns throughout the market. It’s important to remember that if we can weather through this bear market, we’ll be in a good position to take advantage of the recovery opportunities later on.
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To help with your research and investment decisions, we’ve put together this article that covers key indicators from a long-term perspective. We hope it helps you make smart decisions with these bear market investing strategies.
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It can be tough to wrap your head around the past six months of the crypto bear market, but we wanted to let you know that it’s been a long time since the digital asset class has experienced such a severe downturn. A lot of people are wondering, “Is this going to last forever and is crypto in a bear market permanently?” The answer is no, not if you keep an eye on the big picture and stay invested!
We’ve seen this before with Bitcoin in 2011 and traders came out as winners. That’s because they invested in coins like Ripple that had a long runway for growth.
These cycles are distinguished not just by price patterns, but also by on-chain indicators, developer activity, and investor distribution. Let’s see how with these bear market investing strategies.
80% Drawdowns Ain’t What They Used to Be
With a crash of over 80% across major crypto assets, this is a staple in crypto bear markets. However, there are grounds for less severe losses in the future.
- As crypto matures as a technology, the likelihood of it vanishing decreases as it obtains wider usage.
- In fact, when the dotcom bubble burst, Amazon’s stock plunged 95 percent; later, as a more established firm, it lost “only” 65 percent from its highs during the financial crisis.
- This may be true for established crypto assets, but it is less true for smaller, more speculative assets that are still in their early stages.
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The current bear market has had an effect on many different indicators, but some have remained relatively stable. The VIX, sometimes known as the “fear index” because it indicates market expectations of volatility, is one such indicator.
We’ve noticed that on-chain indicators have sustained at higher levels than in the previous bear market, which indicates that there’s a lot of investment money still left in the crypto space. Here’s why:
- Because speculation accounts for a large amount of demand, transaction fees are expected to fall precipitously when trading confidence deteriorates during down markets.
- Higher amounts, on the other hand, indicate stickier demand.
- Bitcoin had a daily transaction volume of more than $500k in May 2022, up from $130k in May 2018.
- Ethereum and other crypto-assets have followed a similar trend of less significant decreases in on-chain activity than in previous bear markets.
Development Activity Growth
Regardless of price movement, Bitcoin and Ethereum both exhibit steady progress in their development activity.
We’ve seen a dramatic increase in the number of people using Bitcoin in recent years, with committed transactions on the network growing by over 50% in just two years. This shows that despite all the volatility, an increasing number of people are confident in Bitcoin’s long-term potential.
This has been one of the few leading indications for crypto growth since, as an open-source ecosystem, it relies on developers all around the world to contribute to the continuous enhancement of these networks.
As you can see, there’s also been a recent shift towards investors investing for the long-term. This shift is important because it also means that more investors are willing to take on risk.
As a result, investors’ capital has shifted from short-term investments to long-term investments. This is a leading indicator of the changing distribution from short-term to long-term investors during bear markets. What does this mean for us?
Hodlers Double Down
Many people might assume that it’s best to invest in crypto assets with a short-term horizon. However, by investing for the long-term, you can take advantage of up and down markets to increase your holdings over time. Hodlers Double Down investors do precisely that.
So far, we have been able to capture a trend that can be seen in previous markets. The percentage of Bitcoin owned by addresses holding one year or longer has expanded in previous bear markets.
And while short-term traders are still holding their positions and crashing with the rest of the market, long-term investors are slowly exiting as the price falls lower and lower.
We agree that the crypto bear market is volatile and in upheaval right now, but it has been that way for years. For example, early internet stocks were much more volatile than they are today. This is a typical pattern for new technology, which includes crypto as well. We have also seen similar patterns throughout the cycles of other industries like commodities, semiconductors, and biotechnology.
Overall, we see a lower drop in on-chain indicators, continued rise in developer activity, and long-term investors doubling down once more.