Top 5 Indicators Traders can Use to Spot the End of a Crypto Bear Market

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Key Insights:

  • Bitcoin fell below its previous cycle’s all-time high price triggering larger market sell-offs this weekend.

  • Looking at metrics and indicators can help provide insight into when a bearish drawdown might end.

  • Bitcoin’s SOPR recently made a multi-year all-time low.

The days of quick profits of off top cryptocurrencies, meme coins, and altcoins have gone as the dreadful bear market sets. The bear market took full shape as the top cryptocurrency, bitcoin (BTC), fell below its previous cycle’s all-time high price triggering larger market sell-offs.

The bear market has sent shivers down the spines of newcomers as well as seasoned traders and investors. With the global crypto market cap still below the $1 trillion mark, the larger market is still wondering how the king coin and the crypto market will return from this epic fall.

At this point, one question that plagues the crypto market is ‘how and when the bear market will end.’

While it is next to impossible to predict when the bear market will end accurately, looking at previous cycles and price bottoms can help understand how supply-demand dynamics pan out towards the end of bearish phases. Thus, looking at metrics and indicators can help provide insight into when a bearish drawdown might end.

Here are five metrics and indicators traders and analysts use to assess the bear market bottom and gauge how the market might behave.

Assessing a Crypto Bear Market Bottom

One of the simplest ways to see whether a bear market is, in fact, coming to an end is to look at the larger market sentiment. The crypto fear and greed index provides an insight into the larger market mood.

Much like the rest of the financial markets, the crypto market behavior is very emotional. Investors tend to get greedy when the market rises, resulting in FOMO (Fear of missing out).

On the other hand, people often sell their coins in the irrational reaction of seeing red numbers or losses. The Fear and Greed Index works on two assumptions: extreme fear can be a sign that investors are too worried, and when investors are getting too greedy, the market is due for a correction.

The current sentiment of the Bitcoin market was largely bearish as the fear and greed index presented Extreme Fear, as seen below.

The index is a meter from 0 to 100. Zero means ‘Extreme Fear,’ while 100 means’ Extreme Greed.’

Another good sign that a crypto winter or bearish period ends is when blockchain and web3-centric organizations begin to hire again, and new projects launch with notable funding announcements.

An uptick in hiring trends and investment announcements are indications that funds are beginning to flow back into the ecosystem and the bear market is in the past.

Bear Market Bottom Indicators

Apart from the general sentiment and mood, some technical indicators tell us about the market’s health in terms of demand, supply, development etc. Market analysts and traders have historically used technical and on-chain price indicators or metrics to point out market tops and bottoms.

Accurately pointing out the market bottom in a space as volatile as the crypto-verse is next to impossible; however, some metrics flash bullish recoveries and can be used to look at market trends reversing.

Bitcoin SOPR

The Spent Output Profit Ratio or SOPR is an indicator that provides insight into macro market sentiment, profitability, and losses taken over a particular time frame. It reflects the degree of realized profit for all coins moved on-chain.

SOPR is measured by considering only coins moved the timescale considered (daily, hourly etc), and taking the ratio between the fiat value at the time of UTXO creation, and the fiat value when the UTXO is spent.

Notably, SOPR values greater than 1 imply that the coins moved that day are, on average, selling at a profit. In contrast, values less than 1 indicate that the coins moved that day are, on average, trading at a loss.

SOPR trending higher implies profits are being realized with potential for previously illiquid supply being returned to liquid circulation. In contrast, the metric trending lower indicates losses are being realized and/or profitable coins are not being spent.

Bitcoin’s SOPR can be used on a longer time frame to point out market tops and bottoms. A recent Glassnode Tweet presented that Bitcoin Entity-Adjusted SOPR (7d MA) reached an all-time low (ATL) of 0.79772 on 21 June; the previous ATL of 0.79887 was observed on 18 March 2020.

While a-SOPR reaching a multi-year all-time low can indicate that the market bottom has arrived, it can’t be said for sure if the current short-term recovery is just a bull trap.

RSI and 200-week SMA

Historically, the 200-week simple moving average (SMA) has acted as a technical indicator that signals the end of a bearish period multiple times. In bitcoin’s cycles, when the price falls below the 200-week SMA and then climbs back above it, the same points towards a trend reversal for the top coin.

A noticeable price recovery above the realized price, which is the aggregate purchase price of all bitcoin, can also be used as a supporting indicator to point out market trend reversals.

Apart from that, the relative strength index or RSI is another technical indicator that can offer insight into when the lows of a bear market may be in. RSI helps assess the buying pressure vs the selling pressure. The indicator also presents the larger sentiment of the market and tells whether bulls or bears are in control.

In previous bear markets, BTC’s RSI dropped into oversold territory. It fell below a score of 16 around the time BTC established a low. Looking at longer time frames to spot RSI reversals can also be a reliable measure of market reversals.

Usually, a u-turn in weekly RSI can further confirm the end of a bear market.

Market Value to Realized Value (MVRV)

Market-value-to-realized-value is a ratio of an asset’s Market Capitalization versus its Realized Capitalization. By comparing these two metrics, MVRV can be used to determine when price is above or below “fair value” and assess market profitability.

Extreme deviations between market value and realized value can be used to identify market tops and bottoms as they reflect periods of extremes in investor unrealized profit and loss, respectively.

Low MVRV values and down-trends show that the market value of the coin supply is decreasing relative to the realized value (cost basis). Lower values indicate a smaller degree of unrealized profit in the system, which may signal undervaluation or poor demand dynamics.

A reversal in long-term MVRV can act as a strong sign of market recovery and help plot a market bottom.

Moving Average Multiplier

The two-year moving average multiplier tracks the 2-year moving average and a 5x multiplication of the 2-year moving average (MA) with bitcoin’s price. This metric has also been used to determine when the bear market is over.

Notably, every time the price of BTC fell below the 2-year MA, the market entered the bear market territory, on the other hand, when the price climbed back above the indicator an uptrend continues.

Furthermore, when the price climbed above the 2-year MA x5 line, the same signaled a full-on bull market and presented an opportunity to take profits. Analysts often use this metric to signal when it might be a good time for accumulation.

These metrics and indicators help analysts assess whether the bear market is coming to an end. However, no indicator or metric can accurately point out market bottoms, and it’s best to do your own research and stay safe in a bear market.

This article was originally posted on FX Empire