Two Key Reasons Bitcoin Enters Bear Markets: Wall Street Veteran

According to Wall Street veteran and mathematician Fred Krueger, Bitcoin bear markets happen for exactly two reasons: first, when global liquidity turns negative, in the case of Fed tightening; second, forced selling from a Bitcoin-specific shock (in the instances of Mt. Gox, miners or fraud).

Krueger backs up his assertion with figures, adding that everything else remains noise. Traders define a “bear market” to refer to a price drop of 20% or more for an asset; as such, prices are low and projected to continue dropping for an extended period. 

Krueger outlines a number of instances when Bitcoin entered bear markets, and the triggers behind it. 

In 2011, when BTC fell from $32 to $2, a 93% drop coincided with the end of quantitative easing alongside dollar tightening. The stock market also entered a stealth bear zone in this period.

From 2013 to 2015, when Bitcoin fell from nearly $1,100 to $200, marking an 85% drop, this period coincided with the collapse of Mt. Gox and massive forced selling.

From 2017 to 2018, when the Bitcoin price fell from $20,000 to $3000, an 84% drop, this period coincided with the start of Fed rate hikes alongside quantitative tightening. The global dollar liquidity also peaked, while ICO leverage saw a violent unwind.

In March 2020, when Bitcoin fell from $9,000 to $3,800, dropping about 60% in a matter of days, this period saw global margin calls as well as dollar shortage. 

Between 2021 and 2022, when Bitcoin fell from about $69,000 to $15,500, a 77% drop coincided with quantitative tightening, which saw the fastest rate hikes in 40 years. The strings of internal failures in the crypto industry marked by the collapse of Terra (LUNA), 3AC,  Celsius and FTX triggered a cascade of forced selling on the market.

No exceptions?

Krueger noted that with the exception of the 2019 pullback, which was a rally failure, not a bear market; the 2021 China mining ban, which could be deemed a correction and not a cycle reset; and the 2023-2025 drawdowns — which saw no tightening and forced sellers — there were no post-2013 Bitcoin bear markets without a negative liquidity impulse, or forced liquidation overwhelming demand.

Bitcoin extended a downtrend that started in early October with a series of lower highs. At press time, Bitcoin was trading up 3.21% in the last 24 hours to $90,015, down 28.84% from an all-time high of $126,198 reached in October. The leading cryptocurrency had previously fallen to lows near $80,000 in late November.