Grin and Bear It: Why the Bear Market Really Isn’t So Bad

“Traders and investors are humans, full of emotions, behavior biases, and good and bad past experiences. We don’t have much control over psychological shortcomings, and we routinely make decisions contaminated with our emotions and biases.”

― Naved Abdali

The past couple of weeks have been emotional for Bitcoin investors. Bitcoin has gone from around $19,500 just a little over a week ago, to an impressive and rapid rise to $28,578 and bouncing . Euphoria and greed are flying high, but human emotions are fickle and as volatile as the market itself. It is certainly debatable whether the bear market is over or if the highs are only temporary. Regardless, it’s important to respect the bear market and the lessons it has to teach us.

A bear market refers to a period of time in the financial markets when prices are falling, and investors tend to be pessimistic. There is an indicator well known by Bitcoin investors as the Fear and Greed Index, which is a metric of market sentiment. It’s currently sitting at a 66 at the time of writing, indicating greed and reflecting the current rise in price. However in a bear market, the prevailing sentiment is one of fear. As humans, our ingrained psychological reaction to fear is often to flee, or in the financial world…exit our position.

The impact of a bear market on the crypto industry can be significant. The crypto industry is heavily influenced by market sentiment, which can quickly shift from bullish to bearish during market downturns. This can lead to a vicious cycle of selling, as investors rush to exit their positions and lock in gains or minimize losses. However, the bear market is not all gloom and doom, there are also many benefits to a bear market that are often overlooked.

First and perhaps most alluring to most is that a bear market can be an opportunity for investors to buy into the market at lower prices. Specifically first time investors that might not otherwise ever have the opportunity for such substantial gains. For those who believe in the long-term value of Bitcoin, a bear market can provide a chance to accumulate the asset at discounted prices. By buying when prices are low, investors can potentially make significant gains when the market eventually recovers.

Bear Markets can bring much-needed clarity to the cryptocurrency space. During a bull market, prices can be driven up by hype, speculation, and FOMO (fear of missing out). Furthermore bear markets serve as a tool to weed out bad actors in the cryptocurrency space. During a bull market, there tends to be an influx of scams, frauds, and projects with little substance. Scrutiny arises during the bear market, forcing these bad actors to either improve their offerings or get out!

Another important aspect of the bear market is evaluating risk. Everyone is riding a euphoric high during the bull market. YouTube influencers joke that you could throw a dart and hit a “winning” project. Investors tend to get bold and complacent and take on too much risk. After all, when everything is going up, you feel like you can’t lose. Until you do… But a bear market is a different story. When the market is heading south, reality slaps you in the face and shit gets real. It forces you to reassess. And that’s a good thing. Because when the market does eventually turn around, you’ll be better positioned to ride the next bull phase with confidence.

But it’s not just about managing risk. A bear market can also teach us a lot about market psychology. When the market is falling, fear and panic start to set in, and investors can quickly lose sight of the bigger picture. But if you can keep a level head and remember that market cycles are a natural part of investing, you’ll be able to stay focused on your long-term goals. And that’s the key — staying disciplined and not letting short-term market movements dictate your investment decisions.

History provides countless examples of bear markets we can look to for reassurance. We only need to look back half a decade to examine two recent bear markets in crypto and how they impacted the industry.

The 2018 bear market was brutal. This market downturn was sparked by a number of factors, including regulatory pressure, security concerns, and a general lack of faith in the future of cryptocurrency.

Market prices fell sharply, with Bitcoin, the great-grandfather of the crypto industry, dropping by more than 80% from it’s all-time high. The impact of this bear market was felt across the entire crypto industry, with many investors and companies struggling to stay afloat. Many investors, who had poured millions of dollars into the industry during the previous bull market, were left with devastating losses. Several high-profile projects, including Bitmain and ConsenSys, had to lay off staff or shut down entirely. However, both companies made successful rebounds from their bear market troubles and came back even stronger.

However, Bitcoin is known for its resilience, and it didn’t take long for the industry to start bouncing back. Many companies and investors saw the bear market as an opportunity to refocus and strengthen their positions. This period of introspection led to the development of new and innovative technologies, such as DeFi (Decentralized Finance).

Fast forward to 2020, and the crypto industry was hit by another bear market, this time triggered by the COVID-19 pandemic. The pandemic caused widespread panic and uncertainty in the financial markets, and Bitcoin was not immune. Market prices once again fell sharply, with Bitcoin dropping by around 50% in just a few days.

The impact of this bear market was not as severe as the 2018 one, as the industry had matured and become more resilient. Many companies and investors had already weathered the previous storm and were better prepared for this time. The pandemic-induced bear market was a global event, affecting all industries, certainly not exclusive to the crypto industry.

Despite the challenges posed by the bear markets, Bitcoin has continued to grow and evolve. In fact there is a running joke amongst Bitcoiners about how many times Bitcoin has been declared dead and yet risen from the grave. At the time of writing the current tally of Bitcoin obituaries sits at 473 according to 99bitcoins.com. And yet the industry only becomes more sophisticated, with new players entering the market and new technologies being developed such as layer 2 solutions like Lightning and Liquid which helps to scale Bitcoin and enable faster transactions. Investors have become more savvy, and companies have become more adept at navigating the regulatory landscape.

So yes, a bear market can be tough to weather. But it can also be a valuable opportunity for growth and learning. It might just teach you something, or it might even create the opportunity of a lifetime. Bear markets in Bitcoin can be brutal, but they are also a natural part of the market cycle. While they can cause significant disruption and pain, they also present opportunities for growth and innovation. Bitcoin has proven to be resilient in the face of adversity, and there’s no doubt it will continue to evolve and adapt to the challenges of the future.