Bitcoin Just Entered ‘Structural’ Bear Market: What Does It Mean and What’s Next?

Market Downturn Analysis

Bitcoin's price experienced a significant decline on Sunday afternoon, reaching a new six-month low of $93,000. On the surface, the reasoning behind this latest crash appears to be minimal, with no major catalysts readily identifiable.

However, analysts from The Kobeissi Letter suggest a more profound and fundamental shift is occurring within the cryptocurrency market, explaining why a new type of 'structural' bear cycle has begun.

Reasons for Volatile Price Swings

Before delving into the specifics of this type of bear market, it's essential to understand the factors contributing to the overall market turmoil according to the analysts. Bitcoin has lost 25% of its value since its early October all-time high, and following the Sunday dip, it now sits at six-month lows of $95,000. The analysts acknowledge that this decline is particularly "strange for one key reason."

"There haven’t been many material bearish developments on the fundamental side of crypto. Just days ago, President Trump said America being 'number one in crypto' is his top priority."

Furthermore, inflation in the US is gradually decreasing, the Federal Reserve has recently cut interest rates, and a trade deal between Washington and Beijing appears to be nearing completion. These developments collectively paint a more bullish picture than, for instance, the landscape observed in April.

Consequently, the analysts have categorized the current downturn as "structural and mechanical." They pointed to institutional outflows observed in mid-to-late October as the starting point, a trend evident in the ETF data. In the first week of November, crypto-focused funds saw net outflows totaling $1.2 billion, marking a record.

The complexity in the crypto market arises from the excessive leverage employed during these institutional outflows, as explained by The Kobeissi Letter.

Future Market Dynamics

The analysis further noted that three out of the last sixteen trading days have witnessed liquidations exceeding $1 billion. Additionally, the analysts highlighted that daily liquidations of over $500 million have become a regular occurrence. When combined with 'thin' trading volume, these factors contribute to violent price swings in either direction.

This phenomenon also accounts for the significant shift in market sentiment. As previously reported, the Fear and Greed Index has fallen to its lowest levels since February, despite Bitcoin showing a 25% increase since the April bottom.

"Leverage is amplifying shifts in investor sentiment," the analysts stated.

Despite these market dynamics, the team concluded that the fundamental value of the cryptocurrency market has continued to improve. They predict that the market bottom is approaching, as these temporary disruptions "will work their way out."