“Human action can be modified to some extent, but human nature cannot be changed.” - Abraham Lincoln

How funny it is to watch theories prove themselves.

This bear cycle has been no exception. Although many institutional players joined the market and the dynamics were different from the previous ones, the market psychology was very similar.

Let's go back in history:

Prior to the current bear market, the summer of 2021 marked the Thrill phase, and following that, the market pushed into the Euphoria phase, leading to the first all-time high. Bitcoin first experienced an all-time high, and ETH followed shortly after.

This Euphoria phase was also when Solana was seen as the new ETH, when Axie Infinity was the future of Play to Earn, when Decentraland and The SandBox were the future of the Metaverse, and when NFTs were the new Eldorado. In short, a lot was happening and changing.

After this crazy rise, a phase of Liquidation followed leading to the flash crash in May. The market managed to bounce back and redirect us to a new all-time high where many people thought we were headed for the famous $100,000 target for BTC, including us.

The fact is that those who didn't rethink their strategy after the actual $69k high for BTC are still biting their fingers today.

Indeed, although we made an all-time high at $69k, it now looks like we were in the Complacency phase in terms of the timeline. Many would think we weren’t in this phase because we made a new all-time high, but that is a mistake. In terms of market psychology and timing, it looks very similar, especially because of the downturn that followed. The market never recovered, and as a result we entered a Bear Market.

The Anxiety phase started with the War in Ukraine and the beginning of a new international monetary policy that was starting to be put in place.

The Denial phase then came with the Luna Crash.

The Anger phase began at the end of the year with the collapse and bankruptcy of FTX, which undermined the entire crypto ecosystem due to its size and sprawling structure.

We are currently close to a bottom (if we’re not currently at one), and we should start the Depression phase in the next weeks/months after these writings, which would be the beginning of 2023.

The prior bull market was marked by the entry of institutional investors into crypto. The current bear market will have been marked by the subsequent exit of these institutions from crypto.

It's incredible to see that the same players who allowed us to rise so high are now dragging us down so low. All it took was for 3AC to fall for the house of cards to collapse. They were all in cahoots, leveraging each other. We are still dismayed that the greatest analysts on the planet working for these institutions did not anticipate this.

Our catchphrase when talking about crypto investing is DYOR, which stands for ‘do your own research.’ This mantra is especially important in times like these when the supposed analysts who understand the market do not in all actuality.

These financial elites that were supposed to be the SMART MONEY have been very disappointing. Case in point, Tiger Global and Multicoin Capital have lost almost all of their funds in recent weeks after they had been posting their highest returns in the prior years.

Below is BTC’s price chart from 2019 to now, and it follows the wall street cheat sheet very closely. The pattern is very consistent so far.

As described above, we are past the point of anger with the FTX affair and the billions of dollars missing from retail investors. We are now entering the final phase which is capitulation where the largest institutions are closing shop all because of their greed and lack of due diligence. We expected much more from these so-called professional players.

This episode has taught us one thing: they are not smarter than we are. We expect that there will be a period full of dashed hopes, media headlines welcoming the end of crypto, and fears of over-regulation stifling innovation.

Here you can see a chart in which we can compare the price of BTC with the fear and greed index.

Every time the fear indicator went below 10, a recovery was close. But also, the longer the indicator stays close to 10, the closer we are to a recovery.

Make no mistake. This is the time to start accumulating. No matter how anxiety-provoking the social media sentiment is.

We've been through this situation before.

In 2018/2019 the foundations of this ecosystem were not as strong as they are today. It was still possible to doubt. The use cases back then were not very encouraging, and the industry was made up of a lot of money grabbers. Now it is made up builders with so many innovative ideas.

During the previous bear market, we had the same fear because that’s basically what a bear market is made up of — fear and desperation.

How to approach the next period — 2023-2025

Even if, macro-economically speaking, we are very close to the bottom, this does not mean that we cannot go down further. A bear market certainly has the ability to surprise you.

The MVRV Z-Score is a chart that uses blockchain analysis to identify periods where BTC is extremely over or undervalued relative to its 'fair value'.

Each time this ratio reaches the green box, the price reaches a bottom. As with the fear and greed index, the longer the ratio remains in these levels, the greater the probability that the bottom has been reached. In other words, the price has reached levels where there is support from the market.

But once the bottom is reached, we don't go back to brighter days right away. There follows a period of long monotony with low volume and low activity.

What to buy during this bear market to maximize your gains during the next bull market?

Let's take EOS as a case study. The EOS price chart can be seen below.

During the last cycle, EOS raised ~$1B on their new Layer 1, high TPS, scalable and revolutionary smart-contract platform.

From their post-ICO listing of $0.50, they peaked at $22. In each cycle, dino coins always pump less than newer altcoins. This happens for several reasons. One of which is the idea that the grass is always greener on the other side (a psychological principle). There was also another big reason though; there were too many bag holders. A token/coin with so much history, especially after a decline of 97%, is hampered during its rise by all its sellers who want to get out in order to save some of their losses so that they can buy into other projects which go with more of the current narratives.

EOS, like all other dinos, will become more and more irrelevant through the cycles.

Technology and narratives are always evolving very quickly in crypto. A company with one technology can be replaced by a new company with a better technology, or a better go-to market strategy. That's why we always advise against a reckless "hold” trading strategy.

The crypto bubble is often compared to the internet bubble of the 2000s. This comparison is underestimated. Web3 is much more powerful than the internet bubble. It is still an immature market, and you can't expect to hold the next Apple or Google among your favorite altcoins. 90% of them will hold no value in 10, 20 years. The point of this it to say that the purpose of altcoins is to make a profit, sell and move on to the next narrative.

Bitcoin dominance

The BTC.D is a very important indicator, especially for those who are looking to invest well. The historical chart for BTC.D can be found below.

In a market cycle, there is a time for everything: a time to buy, a time to sell. Similarly, there is a time to buy BTC and a time to sell it, just as there is a time to buy altcoins and a time to sell them. Anticipating these trends allows you to minimize your risks and the volatility of your total portfolio.

Having BTC in a rising BTC.D phase allows you to reduce your portfolio volatility and minimize your risk, while maximizing your profits.

The other alternatives

We have very little precedent for this, but the crypto market is now paced by the macro-economy of traditional finance. It is possible that the actions of the Fed or other central banks could slow or accelerate a recovery. Strong regulation would also be one more mechanic that could help or limit mass adoption. We must approach the market with the knowledge of the past but be open to any and all eventualities. The end of this market cycle has been different, and the bottom could be different too. That is, there is a chance that we have already bottomed. This would mean that ETH could recover quickly and strongly.

What happens to miners?

The attitude of miners is always interesting to study because it tells us about important transitions during cycles.

Miners who are accumulating tell us that they are bullish on the Bitcoin price because they are buying BTC in addition to what they are mining. On the other hand, if miners start selling BTC, it is usually either for profit taking in a bull market or for loss prevention in a bear market. When the sell-off comes in a bull market and miners start to distribute, it usually indicates that we are close to the end of the bull cycle. On the other hand, when miners sell in a bear market, it indicates a point of capitulation and that the bottom of the market is near or has passed. This is because they need to cash out to prevent losses; in other words, it represents a price floor at which BTC needs to be produced given costs.

What we can see right now is that the difficulty of mining is getting higher and higher, but the price of BTC is only going down. This is because the cost of mining BTC is not profitable with the current price of BTC, and the price of electricity is rising globally. Both of these factors and many others are negatively impacting miners in the current environment.

Miners started their progressive BTC sell-off in August. The Capitulation of the miners could be about to end. Because of this, we might enter a phase of Depression in which miners will not invest in BTC or make very little investment in BTC.

When we see a renewed interest and return of investment of miners who will resume to accumulate BTC, this could indicate a paradigm shift.

We would like to point out that this indicator is not an exact science and that miners have not always made the right choices.

Their move to sell BTC in early January 2021 was relevant and indicated that we were getting close to a market peak.

But as an example of miners being wrong, they bought back too early in April 2021 before the fall and on the fall, but they did sell at the bottom in June 2021.

Conclusion

Although this bear market may seem violent in its form, the substance causing it is not as violent. The previous bear saw a correction of -85%, while in this one we are only at -75%. Additionally, if the bottom is reached, the intensity of correction will have been milder in this bear market. On the other hand, as the dominoes (DCG, Grayscale and co.) continue to fall, it is likely that the market will undergo a new stress test that will have us hit a new bottom on a big capitulation candle.

Nevertheless, in macro terms, we should be past the worst of it, and there is growing confidence that we should start buying now.

What I would do now

Given everything we’ve laid out, I would structure my portfolio as follows. (Note that I am 100% stable)

There are two alternatives depending on your risk appetite and personality:

• 30% of your portfolio divided between BTC, ETH, and 2 or 3 altcoins, or

• 30% on BTC only, to play the bounce dominance, and decrease your portfolio volatility

Once invested, I would wait several weeks. The market, even after a bottom, will not go back up all at once and a period of range will follow. After so much time spent in a bear market, I do not want to burn my stable corners on another big drop. I would be taking my time. There is no rush. There is no need to rush to buy. Select your positions well.

At the beginning of 2023, I will replace another 30% of my portfolio with more exposure to ETH and altcoins.

Still, we believe that BTC will outperform ETH at first once the bottom is reached and the rebound is initiated. But adding ETH to your portfolio will increase the possibility of making a profit as your exposure to multiple coins is increased.

Certainly ETH will outperform BTC eventually, but as we said before, there is a time for everything. ETH is the image of adoption and revolution, BTC is a market leader still today. As long as the latter does not show a recovery, the attention on ETH and its ecosystem will not be as highlighted. This will come later. Especially since with current market dynamics, ETH might not be deflationary anymore.

Take a look for yourself at this chart which compares the dominance of BTC and ETH in 2019:

The green square shows the timing between the market bottom and the market recovery during the rebound. BTC's dominance is clearly stronger, and ETH's only goes down.

Ok great, so what? Not convinced?

Post bottom, BTC rebounded from 3.5k to 12k, or a little more than tripled (3.4x).

Post bottom, ETH rebounded from $130 to $330, a little more than doubled (2.5x).

The difference in returns may seem small, but keep in mind that by making this trade on BTC you are almost 2x more profitable. Because the ETH Dominance at this moment is at its lowest and it is when you would start switching from BTC to ETH, you would be able to accumulate even more ETH.

Important: Note here that we take into account the fact that we have potentially not yet hit the bottom. If we have already hit the bottom, it is important to take into account that in this bear market, ETH has been much more resilient and has held up much better than BTC. An asset that can withstand a downturn better is generally more likely to rebound faster and stronger.

Going back to differentiating the two bear markets, unlike the previous bear, in this one we will be buying some altcoins that have lived through the previous cycle. We will focus on those that have a narrative that we believe will meet the mass adoption of the next cycle (examples: $UOS, $AUDIO, $THETA, $ENJ).

Remember that even if the bottom is reached in the next few weeks and you buy at the perfect time, you will have to take profit on the way up. This is because during a bear, the bottom will likely be revisited at some point (see the example of the bottom at the end of 2018 and then back to the same price in March 2020).

The bottom is not marked with a V reversal (i.e. a bottom during a bear will not go up quickly).

Wrapping up

Now, it is time to remain disciplined, you have come this far, you will arrive at the end of the tunnel. There is no way back. The only mission we all have now is to find the next 100x.

Bear Market Analysis by Thibaud Souchal. Thank you to those who contributed to the analysis. We welcome your feedback. Subscribe to hear more from The Symmetrical.