Bitcoin Crashed from $69K to $42K: Will the Bear Market Begin?

On December 4, 2021, Bitcoin’s price opened at $53,601 and immediately crashed to $42,000 in a matter of minutes. BTC lost more than 20% of its value, causing a massive plummet in the altcoin market such as Holochain (HOT) which lost more than 75% and Shiba Inu (SHIB) losing more than 26%. Many feared that this day would come and so it already arrived. Now, many are begging the question: is the Bitcoin crash the beginning of a bear market or just a temporary consolidation that will resume the bullish cycle? Let’s do a brief investigation as to what caused a major red day in the crypto market. 

Disclaimer: This article is not financial advice.

FUDs Start Hitting Social Media

Following the false breakout of BTC after analysts thought that its support area of $52K to $55K would remain strong, the 45-minute crash brought panic in social media. This caused a huge spark in the $BTC and #BTC trends on Twitter as well as Redditors within r/bitcoin and r/cryptocurrency. Nobody knows what caused the big drop since there was no event-changing news that served as a catalyst. Paper hands who bought Bitcoin at its previous area of $55K found themselves panicking and selling at a lower price. BTC hit a new all-time high on November 10, 2021, reaching $69,000 before dropping down to $42,000 in the weeks that followed.

While many investors search for answers , Analysts speculate that the BTC price was simply too high. Some have speculated that the new COVID-19 variant - omicron - also brought in the Bitcoin crash which did not just hit cryptocurrencies but also on the stock market and penny stocks as well. Others may say that the US Federal Reserve is behind all this after their relentless attempts to devalue cryptocurrency over the US dollar. Yet, there is no confirmation that these brought in the new dip. 

In fact, if you look at the Bollinger Band indicator, you can clearly see that BTC was overbought within the $60K zone. As usual, what goes up must come down. Unfortunately, the short-sellers took over the market, resulting in a bloodbath for Bitcoin and the altcoins whose movements flow with the BTC current. Only some of the major altcoins including ETH, LUNA and XTZ managed to mitigate the drop.

Diamond hands see this drop as another opportunity to buy some more and add coins to their portfolios, yet others think this is a disastrous moment, especially for investors whose coin prices did nothing but consolidate for almost 60 days including the current movement of Cardano ADA currency and DOGE’s struggle to compete with SHIBA currency .

Traders who were making deals during the $50K zone of BTC have mixed results. Others have exited before the bloodbath while others sold at a stop loss. 

Without any major news or game-changing scenarios, many fear that this may begin the new bearish cycle for the crypto market.

Whales Leave and HODLers Remain

Huge crashes like this come often in crypto. After all, it is still the most volatile and riskiest investment today compared to the stock market. Yet, there are still plenty of confident individuals who see this as nothing more than an exit for whales. This also marks the beginning of a new batch of buyers that may continue the bullish run for every coin and token. 

However, the price needs to move and the market must expand if we need all digital currencies to reach new heights and go beyond their previous all-time highs. Some would even say that the Bitcoin crash is necessary so the price can grow further. While some currencies including the Solana currency , Polkadot token and Avalanche may have soared to new levels, other coins can’t seem to even reach near their previous all-time highs from March to May 2021 like Vechain (VET), Chiliz (CHZ) and Audius (AUDIO). Yet, many will tell you that this is an opportunity to buy more and stack up on your favorite tokens because the medium and long-term profits are inevitable. 

A Time to Panic or a Moment of Opportunity?

When the streets bleed, there are only two outcomes: people panicking out their coins or people buying some more. If you consider yourself a long-term investor, this should not faze you. In fact, this is small compared to the crash in May due to the alleged Elon Musk tweet and 2018’s horrendous 80% drop. At this time of red days, you should not panic selling or releasing your coins at a lower price. Instead, buy the dip. When people are panicking, that makes a great chance to get greedy on whichever coin you think has value in the long run. 

The dip is the perfect time to buy back on missed opportunities from months or days ago when you could have bought it at a lower price. While others see this as a terrible time in the market, wise buyers visualize such an event as a mega sale. 

But, when do you recognize a dip? Is it everytime the charts are on the red side? Is it when the BTC price hits 5%?

Fortunately, crypto platforms like Binance and Coinbase provide indicator tools to help you decide if you want to buy or sell. Traders rely on these tools to help them in their profit-taking and risk management. For this topic, let’s apply one of the most used tools: the Bollinger Band.

How to Recognize the Dip

Before I begin, please take note that this is purely for reference and not as a reliable source for trading and investing for profits.

Now that I got that out of the way, recognizing the dip may seem difficult at first glance. Just when you see a lower price of a coin, you would immediately buy it only for the price to keep plummeting. Apparently, the price that you bought was not the dip yet but rather a red signal of a larger drop. Traders recognize this as the buy zone but how can you determine the perfect opportunity to buy when Bitcoin keeps pulling the rug? Here are some of the most basic fundamentals that may help you in knowing when to buy:

1. The coin is overbought    

An overbought coin means that the chart shows that its price is going sky high. At that point, you should never chase it at all. For example, the Litecoin LTC price surged from September 29 to November 10. The value went from $139.7 to a local top of $295.7. Obviously, LTC has not reached its previous ATH of $413.4 last May 2021. After the major correction on December 4, the LTC price went back down to $129.3. A move like this made previous buyers from November angry, but those who waited patiently or returned to crypto to buy LTC will see this as an opportunity. 

Now that the value of LTC dropped, it is safe to assume that the coin is now in an oversold state: where the short-sellers and big whales have left to give room for new buyers. Check the image for reference.

2. The BOLL Indicator May Help You    

I’m not saying you should rely solely on the BOLL or Bollinger Band indicator but it makes a great suggestion on when you should buy a coin and when to know if it already hit the dip. Refer to the image taken from Binance.

The purple line underneath signals a buy zone, which comes as no surprise to see LTC doing a massive pullback from $129.3 and now resting at the $150-$160 zone. Many buyers wait for the red candle to hit the purple line so they know when to buy. If the candle goes below the purple line, it signals an oversold state.

On the other hand, do you see the yellow line above? That’s the Sell Zone. If you observe the $295.7 price, it went beyond the yellow line, which signals an overbought state. At that point, you should always expect a price drop when the candle hits the yellow line. It’s up to you if you want to sell at that point or keep on HODLing and wait for the candle drop to hit the purple line so you can stack up on more coins at a good opportunity.

Will Bitcoin Continue to Rise?

Only time will tell if buyers will keep flocking in to buy more BTC. After all, we saw large volumes in the previous $50,000 last September to October 2021. It also makes a good support area, should BTC’s value go above $51,000 but it may also work as a resistance area if a lot of people will think BTC is still too expensive to buy. 
Anything can happen in crypto. Ultimately, it’s up to time to determine the price of BTC before the end of 2021 and the start of 2022 whether it all goes up or forces another Bitcoin crash. What you should do is only put in money that you are willing to lose. Consider that once you put money in crypto, it is gone for good. There’s no guarantee that you will make profits or lose in the long term. Always manage your risks and think rationally when it comes to financial decisions such as buying dips. Never buy at all-time highs and never chase breakouts.