Crypto Bear Market May Drag for Another 8 Months: Shades of Grey

Cryptocurrency markets have strengthened over the past week, but digital asset manager Grayscale Investments expects the bear market to play out for another eight months.

Cryptocurrencies have changing cycles just like traditional economic and financial markets, grayscale researchers Matt Maximo and Michael Zhao wrote in a report published Monday.

They compared the current state of the industry to previous bear market cycles and estimated that there could be another 250 days of “high value buying opportunities.”

Maximo and Zhao said the current bear market cycle began on June 13, when the “realized price” of bitcoin (BTC) fell below the market price. Realized price is derived by calculating the sum of all BTC to the purchase price, divided by the number of BTC in circulation. Bitcoin can expect to see another 5 to 6 months of downward or sideways price movement, they added.

The Grayscale researchers further noted that crypto market cycles last about 4 years from peak to trough. The current cycle – which began in 2020 – was approximately 1,198 days as of July 12.

Compared to previous cycles, this time bitcoin took the longest (952 days) to peak, suggesting the next rally to record highs will be even more drawn out, according to Maximo and Zhao.

“The 2020 cycle appears to have had a longer run in the ATH (all-time high) area with two extended peaks in contrast to the sharp rise and fall of previous cycles,” they wrote. “This may have been due to the growing maturity of the crypto market that did not exist in previous cycles.”

2020 market cycle a “story of influence”

Grayscale said government spending in response to the coronavirus pandemic spurred investors to start leveraging, or using borrowed capital to trade. But their positions began to relax after the Federal Reserve raised interest rates to fight inflation, it noted.

The report pointed to the collapse of stablecoin TerraUSD (UST), the delay in Ethereum’s merger and a lack of transparency in centralized financial lenders and hedge funds as reasons that worsened the market sell-off. And yet Grayscale believes that each market cycle will make the asset class stronger.

“The price of digital assets represents only one part of the broader ecosystem that is developing in the crypto industry,” the researchers wrote.

“While the price of bitcoin has fluctuated along with traditional financial assets amid market uncertainty, the underlying network continues to function as designed, and is on track to process nearly $18 trillion in value this year, up from $13 trillion in 2021.”

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