Technical analysis evolved over time as more people have access to computers. Online trading and the power of computers made it possible to look at markets faster and make decisions easier. 

But technical analysis (and any kind of market analysis, as a matter of fact) has a strong enemy in market psychology. It is said that executing a plan is more important than the plan itself because the psychological factor of trading comes to all of us. 

Think of Bitcoin, for example. It is not even the end of January and the leading cryptocurrency is up 36% YTD. 

Sure enough, those that bought into the $16k area are thrilled with joy. But how many ventured into buying a market falling as Bitcoin did in 2022?

The same is valid the other way around. In a bullish trend, most are afraid to buy new highs for fear of ending up buying the top. 

As such, the plan is to buy the dip – any dip. 

Only when the dip eventually comes, traders get scared and run away. Planning to buy a dip and actually buying it is a different story. 

This brings us to today’s story – should you buy Bitcoin after gaining so much in less than one trading month? Or is this just another bear market rally?

Bitcoin delivered positive returns after a negative year

History supports the bullish case for Bitcoin. Bitcoin has a short history, as it was born relatively recently compared to other markets. 

Nevertheless, a quick look at Bitcoin returns in the last twelve years tells us something interesting. That is, Bitcoin delivered positive annual returns in the first year after negative ones. 

In 2014, the Bitcoin price dropped 58% against the dollar. But in the year to follow, it gained 35%. 

Also, in 2018, Bitcoin fell by -73%, another sharp decline. But yet again, in 2019, it gained 95%. 

In other words, buying the dip after a negative annual performance has worked well so far. Why should this time be different? 

The chase for the bitcoin bottom is still on since the digital asset fell below its $20,000 price level. Given that the bear market has not been long in the making, it stands to reason that the bull market isn’t here just yet. However, being able to pinpoint when the cryptocurrency has reached as low as it will go can help make smart investment choices and the previous bear trends can shine a light to how it might play out.

Previous Bitcoin Bear Markets

The most recent bitcoin bear markets point towards some important trends that may occur before a bitcoin bottom is established. The 2018 bear market and 2014 bear runs helped to shine a light on what to keep an eye on as the crypto winter rages on.

One of the very first things to look at is how long the previous bear markets had actually lasted. In the last two bears, it seems that the amount of days that passes before the market bottoms out is getting lower. 2014 saw a total of 407 days before a bitcoin bottom was established, while it was only 364 days in the 2018 bear market. Given this, it is possible to expect that the duration before the market bottom might be lower this time around but it also shows that the market is likely not there yet.

BTC bear market trends | Source: Arcane Research 

To hit such figures, the market would need to reach December, which is likely when bitcoin would begin to reach its bottom. If history repeats itself, then what would follow would be a stretched-out period of unusually low volatility, which is when investors are presented with the best opportunity to purchase coins.

Another thing is the performance of the on-chain indicators as they are usually low around when bitcoin reaches its bottom. As reported by Bitcoinist, these on-chain metrics hit a long-term bottom, which could help point towards a bottom, or at least an approach to a bottom. The same was the case during the previous bear markets and the current levels align with those same levels.

BTC trending at $19,200 | Source: BTCUSD on TradingView.com

Low volatility in bitcoin also points toward this. For example, back in 2014, the low volatility range lasted for 280 days, while 2018’s lasted for 130 days. It also follows the trend of a decline in the number of days required to reach a bottom. The current BTC low volatility has now lasted for around 121 days.

Now, these metrics is not an exact science since they are not the only factors that go into determining the end of a bear and the beginning of a bull market. The most important thing is perhaps the most unpredictable one, which is human sentiment. In the end, bitcoin’s price will respond to the supply and demand balance in the market. 

Featured image from Analytics Insight, charts from Arcane Research and TradingView.com

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