Two Key Reasons Why Bitcoin Has Entered a Bear Market: Wall Street Veteran

According to Wall Street veteran and mathematician Fred Krueger, there are exactly two reasons for the emergence of a bitcoin bear market: First, when global liquidity turns negative, such as when the Federal Reserve tightens monetary policy; second, forced selling triggered by bitcoin-specific shocks (such as the Mt. Gox incident, miner events, or fraud).

Krueger supported his view with data, adding that everything else is just noise. Traders define a "bear market" as a drop of 20% or more in asset prices; therefore, prices are at a low point and are expected to continue declining for some time.

Krueger listed several examples of bitcoin entering a bear market, as well as the triggering factors behind them.

In 2011, the price of bitcoin plummeted from $32 to $2, a drop of as much as 93%, which coincided with the end of quantitative easing and a tightening US dollar. During this period, the stock market also quietly entered a bear market.

From 2013 to 2015, the price of bitcoin fell from nearly $1,100 to $200, a decline of 85%. This period coincided with the collapse of the Mt. Gox exchange and large-scale forced selling.

From 2017 to 2018, when the price of bitcoin dropped from $20,000 to $3,000, a decline of 84%, this period coincided with the Federal Reserve beginning to raise interest rates and implementing quantitative tightening. Global dollar liquidity also peaked, and related market leverage experienced dramatic liquidations.

In March 2020, the price of bitcoin fell from $9,000 to $3,800, dropping about 60% within a few days. During this period, there was a global margin call and a shortage of US dollars.

Between 2021 and 2022, the price of bitcoin plummeted from about $69,000 to $15,500, a drop of 77%. Meanwhile, quantitative tightening policies were introduced, with the fastest rate hikes in 40 years. A series of failures within the crypto industry, including the collapse of Terra (LUNA), 3AC, Celsius, and FTX, triggered a wave of forced selling in the market.

No Exceptions?

Krueger pointed out that except for the 2019 pullback (which was a failed rebound, not a bear market), the 2021 China mining ban (which can be seen as an adjustment rather than a cycle reset), and the 2023-2025 decline (which did not see tightening or forced selling), since 2013, every bitcoin bear market has been accompanied by negative liquidity shocks or forced liquidations overwhelming demand.

Bitcoin has continued its downward trend that began in early October, setting a series of lower highs. As of press time, bitcoin has risen 3.21% in the past 24 hours to $90,015, down 28.84% from the all-time high of $126,198 set in October. This leading cryptocurrency previously fell to a low near $80,000 at the end of November.