Crypto.Think Weekly Update (23 May 2021):  This weekend, many cryptocurrencies slowly broke down under the 200 day moving average, some even back testing it as resistance, and have since continued down with some alt coins already minting new lows.  With the establishment of new downward price channels over the short term, sentiment is slowly increasing more and more to embrace the short term bear market that seems to be developing.

The Makings of a Bear Market

For the time being, based on the observable technicals and market sentiment currently, it does appear cryptocurrencies have entered a bear market, at least in the short term.  Bitcoin is the most obvious example of this currently, although it is still hovering above the low of $30,000 USD.

As is evident in the graph above, it appears during the initial reversal off the crash, Bitcoin did shoot back up to over $40,000 USD.  This however, now appears more and more likely that this was simply a back test to try and break through the 200 daily moving average level, which it did not.  This was a very bearish development.  Bitcoin is now using this level as resistance, creating a new downward facing channel that can be used to confirm a bear market.  Since then, Bitcoin has headed towards new weekly lows.

Bitcoin has been stuck in the price channel seen above since the break below $58,000 USD back on May 12th. There have multiple points where Bitcoin has tested the top of this current price channel, but has since not been able to break out currently.  Interestingly enough, Bitcoin dominance is rising, although with falling price action, this just confirms the entire cryptocurrency market is definitely entering into a short term bear market.

Alt Coins

Based on current technicals, alt coins should indeed be heading for lower lows.  Rising Bitcoin dominance in the market ultimately means money is either not moving into alt coins or is actively flowing out of them at a faster rate than that of Bitcoin.  The second of these options has currently been happening as confirmed by Bitcoin's falling price.

Ethereum is currently trending downward towards the initial low it set during the first crash.  Based on this observable price channel, Ethereum may head down to test its 200 day moving average level as other coins have done thus far. Currently this level is under $1600 USD, well over 50% lower from its previous all time high above $4200 USD.

Cardano is showing similar downside to Ethereum as it is also still well above its 200 day moving average.  Cardano found a low during the initial drop around $1 USD which was preceded by a large bounce back over the $1.90 USD range before selling back off to its current level under $1.20 USD.  Should Cardano continue on its current price channel, the 200 daily moving average is at a price point of just under $0.80 USD per ADA.

Once again, after the drop Cardano did manage to test the top range of the price channel, but, like Bitcoin and other cryptocurrencies, Cardano rejected hard off that level and continued downward in the channel as evident by the graphic above.

My Thoughts & Analysis

On a first note, I was obviously wrong, at least over the commencing short term market.  I do believe at this point it is safe to say that cryptocurrencies appear to be in a bear market.  That said, based on current economic sentiment, I do not believe this bear market will last over the long term.  With rising inflation, a de-leveraging of investors and institutions, and the greater increasing potential for economic damage over the short term, an initial bursting of markets is currently in the works.  Rising inflation is partially due to the massive amounts of stimulus that was brought into the economy through COVID relief measures and quantitative easing by the Federal Reserve.

The only tool that the Federal Reserve has left to actually combat inflation is raising interest rates.  When this happens, liquidity will dry up and markets suffer.  Cryptocurrencies are currently experiencing this expectation of rising rates.  So, what does this mean over the long term?  With a weakening USD, as inflation continues to get worse, investors and institutions will seek out assets and investment opportunities to hedge against this inflation.  Examples of this could be commodities such as Gold, certain value stocks and companies, and oh yeah, cryptocurrencies.

Why did they sell off then?

Cryptocurrencies have been benefiting tremendously from the massive increase in stimulus and liquidity over the past several months.  With many investors utilizing this leverage to invest with, this had to come to an end eventually.  And well, it did.  The reason I believe this bear market is temporary is due to the expectation that cryptocurrencies will be a fantastic hedge against rising inflation.  As the US Dollar continues to weaken and lose buying power, there will be a rush to move out of USD and other fiat currencies, and into things like cryptocurrencies as I stated above.  Cryptocurrencies have scarcity, scalability, and use cases.  Massive inflation could actually help to accelerate the process of mainstream market adoption of the technology.  This sell off is also providing large institutional money a great buy in point should they choose to go back to cryptocurrencies.. a lower price point they obviously helped create.

Closing

While over the short term, it is impossible to know exactly where the market will bottom or if the bear market will be a short term change or long term trend.  That said, by analyzing the current economic landscape compared to the obvious benefits of cryptocurrencies versus fiat currencies, especially during rising inflation, it is my personal opinion that cryptocurrencies will still see success in the medium to long term.  Keep an eye on the moves of the Federal Reserve and inflation data as we move into summer.  Look for entry points on holdings you currently have and utilize dollar cost averaging to improve your positions.  Time will tell the story as we continue on.

As always, this is just my analysis.  While I aim to provide my insight as accurately and bias-free as possible, please do your own due diligence before choosing to invest in anything as this is not sound financial advice.