Crypto Is Correcting but Could We Be Entering a Bear Market

The market is now clearly in a correction, the GMC (Global Market Cap) has dropped from a peak of $179.3bn, reached on September 2nd to a month low of $121.4bn now, a fall of 32.3%. The GMC is now threating to drop under $120bn, and we could see further waves of selling, so are we in a correction or should we fear a bear market?

I have been warning readers of the blog about this and wrote two specific pieces recently:

After the market traded sideways last weekend, I decided to sell off the majority of my altcoins on Monday, advising readers of my Facebook group I was doing this. My usual Fiat trading position is 5% for 25%, but on Monday I liquidated down to 40%, selling all but my favorite coins.

I was nervous about two things:

  1. The rapid growth in market cap - history shows that any market, which moves this quick will crash or retrace as investors look to take profits
  2. The trickle of news and rumours surrounding the regulation or even banning of Crypto in China

I cleared out the entirety of my tier 4 and 5 positions, all of my tier 3 apart from Steem, the majority of tier 2 and a couple from tier 1. You can see all the positions I closed and at what margin I made on my portfolio page.

This is a temporary position until I see a clearer picture of where the market is going. When I start entering back into smaller altcoins, it will be limited. 

The only positions I now hold are as follows:

  • Bitcoin
  • Bitcoin Cash
  • Dash
  • Ethereum
  • Litecoin
  • Monero
  • Iconomi
  • Ethereum Classic
  • Komodo
  • MaidSafeCoin
  • Steem
  • Factum

I had a dilemma over Komodo and Iconomi as I knew these would be hit hard, but as they have already dropped so much recently, I felt they would be a good hold when the market bounces back.

The reason I liquidated most of my altcoins is that whenever the market corrects, altcoins tend to drop the hardest and during the June/July correction this is where the market outperformed me. Equally, when the market recovers, smart altcoin investments is where you can make high margins. If you look at the drop in the GMC over the last three days it is currently sitting at -9.8% compared to my portfolio dropping -5.2%.

The question now is whether we are in a correction or a bear market. To answer this, we need to define what a bear market is. With the stock market it is considered a bear market when the major indexes fall over 20% over a two month period, but with Crypto, this can't be the case because we are already down +32% and could go further. As such we must look back in history, back to 2013 when Bitcoin crashed and we entered the only ever Crypto bear market. Here the market dropped -78% over a year.

The recent June/July correction was from a market cap of $116.4bn to $61.3bn, a drop of -47.3%, which could have triggered a bear market but prices recovered quickly during August. As such, I will consider this a bear market if the GMC drops over 50% and the drop lasts for over two months.

Do I believe we will enter an elongated bear market though? No. I'm bullish this is a short term correction triggered by changes in the Chinese market, some investors locking in profits and others panicking.

There are many healthy things in Crypto right now which is making me bullish and a few unhealthy things which need addressing.

On the healthy side, we have growing awareness, improving utility and progressive countries changing legislation to support Crypto. On the unhealthy side, we still have clear manipulation in the market, and every man and his dog are launching an ICO.

For me, the healthy things within the market far outweigh the unhealthy, and therefore when the correction is over, I will see this as a great opportunity to invest back into some great coins.

So how to play this. This is about starting to rebuy as close to the bottom, but how do you know when we have hit bottom? You won't know until after it has happened unless you are lucky.

When the market moves, it does so in waves. There can be a selloff followed by a sideways move and possibly even a small upwards move; this is the market testing prices to see if there are more buyers than sellers, if the pricing fails then the market will sell off into another wave. This cycle will continue until the market finds its bottom.

I track the performance of the GMC like it is an individual coin as when the market is correcting the performance of most coins tends to correlate. What I am looking for is a break in the downtrend towards a sideways movement. Once the market stabilises then this is when I will reinvest. 

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I wouldn't sell more in the downtrend, finding the top and bottom is always hard, but when the market is dropping heavily, if I have not already exited positions I'll always hold out and wait for the bottom to be found.

Hopefully, you have already taken money off the table. If so, when the market does find a bottom this is a good time to start buying up some of those speculative altcoin opportunities.