DAY 365 OF THE BEAR MARKET
Exactly a year ago, on the 10th of November 2021, we reached the all time high of Bitcoin and the Crypto market in general. A very small percentage of people were able to identify the signs of danger a few weeks earlier, others weeks or months later. In general, most market participants were euphoric clamoring for higher prices, and most dangerous of all, taking for granted that it would happen without a doubt.
Today, November 10th 2022, exactly 365 days have passed since that day.
I know, it feels like the bull market happened four years ago and the current bear market is going to last forever.
The Devil's Greatest Trick: Time perception in Crypto
Time in Crypto passes differently than in the normal world, there are days that feel like whole weeks because of the amount of things that happen in just 24h and there are other times where the price moves in a 1% range for weeks and it feels like months.
This time distortion is normal on short time scales and most of us are already used to it. But the most interesting time distortion is without a doubt the one that occurs in longer time scales; when almost every market participant believe that the current market cycle (whatever it is) will last forever.
“The greatest trick the Devil ever pulled was convincing you that bear/bull market will last forever.”
This is the main dynamic that moves the gears of markets since their invention. Humans, by nature, tend to think that what's currently happening now, will keep going forever. When we feel pain time seems to pass slower and that it will never go away. When you are 14 years old and you wish to grow up so you can do adult things, you feel like it will never come because adolescence is eternal while it lasts. This human perception of time in everyday events can be extrapolated to markets: in the middle of a Bull Market, it feels like it will last forever. In the middle of a Bear Market, it feels that it will last forever.
When the price goes up for long enough to make you believe that it is not just another bear market sucker rally and you get tired of losing money trying to hunt the top, you start to assume that the bear market is over and that the current bull market will be around for a few years. The funny thing about this is that by the time most people realize this the current cycle is around the meridian. This is the point from which the current cycle, whichever it is, starts trying to convince you that it will go on forever.
This time will be different
The reader is probably thinking now that this is an exaggeration and that we all "knew" that the bull market would end, just as we "know" that the current bear market will end as well. But whenever we pass the meridian of any market cycle the certainty that the cycle will end at some point begins to evaporate and be neatly replaced by one of the greatest fallacies in history: "This time will be different". In the middle of a fantastic bullrun the thought that it will end at some point becomes uncomfortable. That's why our brains will begin to accept ideas that reinforce the narrative that gives us the most pleasure, that this time will be different and that it will last forever. That is not the truth and never will be, but the human brain doesn't want uncomfortable truths, it just wants an easy narrative to digest that fits the idea that gives it the most pleasure.
The best example of this we saw in early 2021 when the idea of a "Supercycle" began to spread.
Now the vast majority of market participants have spent the last year trying to hunt the bottom. And recently, especially since we've been moving in the 19-20k range, people have started to realize that we are in a bear market. 12 Months late. Which means we should be about halfway through this cycle.
Just as when people realize we're in a bull market it is a bit late, when most people realize we're in a bear market it is also a bit late. This should not necessarily lead us to the conclusion that the bottom is in. We are 77% down from ATH and it is now when "most" are accepting that we're in a bear market and that now is the correct time to sell/short. This behavior makes me think that price based capitulation must be nearing an end. But let's not claim victory too soon, as many of you will know there are two types of capitulations.
Majority should die so you can survive: Price based capitulation and Time based capitulation
Capitulation based on price.
Definition: When the pain of seeing lower prices causes the market participant to sell his assets.
By nature the human brain feels aversion to losses, and if you are not used to them, the pain can be so intense that it makes you capitulate. The most vulnerable to this type of capitulation are the newest participants. Many cannot withstand large price drops and exit. Unfortunately for them, always near the bottom.
Definition: When the pain of seeing low prices for a prolonged period of time causes the market participant to sell its assets.
Personally I think this is the toughest. Even veterans who have lived through other bear markets have given up here. In fact, I fondly remember CryptoTwitter accounts that capitulated in the last few months of the 2018 bear market and haven't heard from them again since.
"3 feet from striking gold, don't turn back now."
Market participants who've already lived through adverse market conditions are more likely to have the stomach for 90% price drops. The question now is: how long can you hold on in these conditions? You can dive down 5 meters but how long can you hold on down there? The moment the mind feels pain it looks for the quickest shortcut to make it stop. It's easy to hold on for 1 bad day, but imagine having to hold on down there day after day without knowing when it will end. Also, this is where the worst doubts arise. There are some classics that repeat themselves every bear market: the famous tether fud, the miners capitulation, etc. It is down here where the devil will whisper to you: "This time it's different, this will never recover".
The pendulum: Timing market cycles
Market cycles move similarly to a pendulum. A cycle begins when the pendulum bob is the farthest from the center, gravity pulls it and makes it progressively gain momentum as it moves. When it reaches the center the momentum reaches its maximum power, this point is equivalent to the meridian of a market cycle, the time when most have already accepted the current cycle. Past the center the pendulum begins to lose momentum progressively, in the same way that a trend begins to wear out.
Now come the most interesting parts, when the pendulum reaches one of the extremes, this is when the current cycle (let's say a bear market) has ended the price based capitulation. The pendulum no longer has momentum, all the sellers did their thing while the pendulum was in the middle.
When the pendulum (market cycle) reaches an extreme, the perception of time here is different: price falls with less force, volatility is reduced and price is compressed. Think about the second when the pendulum is right at the extreme, when the momentum that drives it upwards is countered by the force of gravity. Now pause that second, step inside the pendulum/market cycle and you will observe something similar to what we are seeing today, November 10th, 2022. Now, you are experiencing one of the most magical moments of a market cycle, the farthest point from the center, the farthest point of the orbit. You are orbiting the point of maximum financial opportunity.
When the force of gravity overcomes the previous momentum, the pendulum will progressively gain speed again in the other direction and another cycle will be born, a bull market.
For the pendulum to swing to the extreme and market dynamics to change, the majority of market participants must capitulate; that's how this business works. The many must lose almost everything so that the few can get a lot. (Eventually those who lost almost everything will re-enter, but most likely it will be too late).
Whoever does not understand market cycles is doomed to suffer them.
If you could observe millennia of market cycles, you would only observe a pendulum moving from left to right.
My perception: 2018 vs 2022 bear market
365 days. The first thought that comes to mind when I see that number is how progressed we are already. I have talked about this feeling with some friends who also lived through the 2018 bear market and most think the same, maybe it is because it is not our first bear market, but generally even if some weeks seem endless, time is passing faster compared to the previous one.
But why is this feeling so widespread?
In 2022 it has taken us 221 days to drop -74%, in 2018 it only took us 51 days to drop -70%. This explains, or at least helps us better understand why the perception of time is different between 2018 and 2022.
Having such a rapid drop in 2018 most realized soon that market conditions had definitely changed. (A -40% drop may confuse you but even the newest market participant knows that in bull markets there are no -70% drops). This early acceptance of a new cycle caused the market to start compressing sooner and faster. Our dear 2018 soldiers adapted early to these new conditions due to the rapid market fall but they made the mistake of thinking that there are unbreakable levels. When the price dropped from 6k to 3k it felt like BTC was going to go to 0. Pure desperation. And for the next 4 months Crypto was simply a ghost town.
In 2022, in part due to the double top, the first big downside move was perceived as another bull market pullback and the second big drop was where most accepted the reality that it was a Bear market. Generally, our dear soldiers have been slower to adapt this time because they were expecting a clear top, and in return received a slower structure.
I believe these factors have shaped two totally different bear markets.
The "majority" is a lagging indicator and it is essential to identify when they accept market conditions.
The "majority" accepted the bull market above 20k, most accepted the bear market below 30k.
I could be wrong like anyone else, but these are my thoughts. I hope you enjoyed it. See you in the trenches, in the orderbooks or in the next article.
With love, Inmortal.
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