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Crypto Bear Market or Buying Opportunity?

Crypto Bear Market or Buying Opportunity?

The crypto market has had a rough week, and the bears are coming out of hiding.

Since Elon Musk hosted an episode of Saturday Night Live on May 9 where he called Dogecoin a “hustle,” the crypto market has tumbled 20%.

This decline puts crypto in bear market territory based on the textbook definition.

But even after the recent selling, the crypto market is up 166% in 2021 alone. Can this really be considered a bear market?

The truth is, what you’re witnessing now is pure noise, and it’s hardly a bear market.

A Profit-Taking Phase

Musk has plenty of influence, no doubt about it.

And when he followed up his Dogecoin antics by criticizing bitcoin’s lack of decentralization just a week later, crypto critics were screaming: “I told you so.”

It’s understandable why the price of bitcoin reacted negatively to Musk’s comments, which, as my colleague Ian King mentioned, may have some merit.

But one billionaire bringing down the entire crypto market? That seems highly unlikely.

What you’re really seeing in the crypto markets is a profit-taking phase.

Prior to the recent selling, the crypto market cap had gained 1,200% since 2020.

total crypto market cap 2020

(Source: CoinMarketCap.)

In general, at the first sign of panic, short-term traders and investors with immediate financial obligations simultaneously sell their holdings to protect their gains.

But the chart clearly shows crypto’s long-term trend is higher. The recent weakness is a matter of market mechanics and doesn’t tell the story about the future of crypto.

The Smart Money Is Still Heavily Invested

Unless crypto becomes heavily regulated, further growth is inevitable.

“Its own biggest risk is its success,” famous hedge fund manager Ray Dalio said, suggesting crypto could become so big that governments view it as a threat to their own currencies.

Investors don’t seem to be too worried about regulatory risks, though, evidenced by record institutional fund flows pouring into the crypto market.

Institutional inflows have totaled $5.6 billion already this year, adding to the $6.8 billion inflow crypto saw in 2020.

Last week was the first net outflow in months. And at $50 million, it was a drop in the bucket.

weekly crypto asset flows chart

(Source: CoinShares.) 

To put the irrelevance of last week’s outflow into perspective, it equated to just 0.08% of institutional assets under management.

So, the smart money is still heavily invested, and you should be too.

Not All Cryptos Will Be Winners

As you can see, the data suggests that the recent crypto sell-off is just another great buying opportunity for crypto investors.

But the majority of these gains will likely come from a select group of cryptos. Not all will be winners.

Fortunately, Ian King is here to help you navigate the rapidly changing crypto market.

Click here to check out Ian’s insights in his special video presentation.

Regards,

Steve Fernandez

Research Analyst, Strategic Fortunes

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