The Unbearable Weight of HODLing

There is no sugarcoating it: We are in a bear market. This is not, however, a bad thing if you are a true believer. (Are you?) Since its inception in 2009, Bitcoin and the adjacent, burgeoning altcoin markets have gone through four distinct bear cycles, which have sometimes intersected with downturns in the traditional market. Each of these downturns has had disparate characteristics, and, if we are to gain any insight into future bulls and bears, questions must be asked surrounding the resolutions to these dips. Do bears really cleanse the market of bad ideas, shaky coins, and untenable projects? We must rewind the clock eleven years, to 2011, to begin a detailed examination.

 In late April 2011, Bitcoin, a relatively unheard-of cryptocurrency project, treated with cautious optimism by mostly only gamers and internet junkies, jumped from $1 to $32 just a month and a half later. During the course of the next few days, Bitcoin dropped, or, rather, plummeted, to $0.01. Why? Helen Partz of Cointelgraph credits this downsurge to a data breach:

After this dramatic drop, it took Bitcoin over a year to climb back to initial highs. Seeing a speculative currency tank 99% in a few days’ time would normally be enough to scare off most prospective investors. Yet Bitcoin began to surge only a few years later; in April 2013, Bitcoin cleared $100. And just a half year later, in November, the $1000 mark was reached. As Robert Frost wrote, “nothing gold can stay,” and Bitcoin dropped to $360 in April 2014, then to $170 a year later. The price drop has been credited mostly to Chinese central bank crackdowns on the currency (their relationship with Bitcoin has been hostile ever since; last year, the country banned both trading and mining). All this taken into consideration–and if you’ve been paying attention to the more recent bears–a trend has emerged: Bitcoin’s current bear troughs have been consistently higher than previous bull peaks. This is a trend that has remained consistent through the four big bears in Cryptocurrency history.

Bitcoin remained relatively stable in the succeeding years; that is, until the big bear of 2018 hit. With Bitcoin reaching an all-time high of $19,764 a week before Christmas in 2017, news of coin exchange hackings in both China and North Korea hit the airwaves, paired with a generally pessimistic view of the future of crypto, which was spearheaded by negative stances held by governments and major financial institutions at the time. This dual effect caused one of the biggest sell-offs in crypto’s history; less than a year later, Bitcoin had plunged to around $3000 in December 2018, and the bear stayed relatively constant until 2020.

As we are (hopefully) emerging from a bear market, an evaluation of the crypto market and the traditional market is necessary in trying to understand, or attempting to predict, future market trends. It is no secret that Bitcoin and other big coins have tanked as the traditional economy has tanked. Yet, if one examines the correlation between the cryptocurrency market and equity markets, this wasn’t always the case. It’s true that the DOW dropped over 1000 points in summer 2011, but Bitcoin’s price plummeted in a way that can’t wholly be linked to equity market downturns. During the 2020 COVID crash, wherein stocks were in freefall, Bitcoin dropped a bit, then rose to unforeseen heights as the market recovered, but not to the same degree. Much of this can be attributed to the rise of $DOGE, the AMC and GME phenomenon, and young HODLers being gifted $2000 by the Trump Administration. Gus Grillasca (@GusGrillasca), a preeminent NFT artist based in Mexico City, has weighed in on the bear markets and their predictive history in order to shed light on how future downtrends might move alongside fluctuations in the stock market.

Grillasca maintains that in order for Bitcoin and other altcoins to rise to new heights, there must be either renewed faith in the utility value of Bitcoin, or there must be an equities surge. The cryptocurrency market rally in 2021 saw Bitcoin rise to an astronomical value of just under $69,000 last November, but has dropped to and stabilized around $20,000. An estimated $2 trillion loss has been realized. Much has changed since previous bear markets. For starters, the collapse of terraUSD, a coin which was supposed to have a one-to-one valuation with the US dollar, set the wheels in motion for a growing skepticism and general pullback effect in the cryptocurrency market. The collapse of Terra and the UST stablecoin was not expected to happen during a period of such immense growth. As a result, Terra’s sister coin Luna collapsed, as did many other altcoins that rose to prominence earlier last year, including previous market darling Cardano. 

In addition to Terra’s collapse, the ripple effect from the liquidation of Three Arrows Capital, a Singapore-based cryptocurrency hedge fund, that filed for bankruptcy due to an inability to meet margin calls, precipitated a further decline. After the collapse of Luna and Terra, Three Arrows failed to come up with the capital to cover losses to crypto lender BlockFi, and all of its positions were liquidated. The company then had to file for Chapter 15 Bankruptcy after having defaulted on a near $700 million loan from Voyager Digital. Bearing witness to some of the largest companies going under due to poor management and risky investments, the sellout continued, and Bitcoin is now hovering around $23,000.

What can be gleaned from past bull and bear cycles? My opinion does not stray far from Gus Grillasca’s, but I’d go a step further in evaluating the potential for a new bull. While no one can truly predict the peaks and valleys of the market, it is not hard to look at the ways in which social media-borne hype cycles interacted with the hefty stimulus packages and unemployment benefits that were suddenly available to more Americans. The GME/AMC/$DOGE boom was possible in large part due to this uptick in social spending, which gave rise to the surging 2021 market, replete with new interest in altcoins as a veritable casino game suddenly accessible to younger people. The next bull run will likely occur at a time when the market is in an upswing, or when Americans’ pockets become lined with a new influx of cash. This could come in the form of increased social spending following wage increase legislation, or it could occur like it did in 2020, if the Coronavirus pandemic, or some other contagion event, rears its head, threatening the global and US economies. Both Nietzsche and Hegel agreed that history repeats itself (“time is a flat circle;” “first as tragedy, then as farce”), so I would not be surprised if past trends reemerge, with individuals and companies repeating both follies and successes of past bulls and bears. But we will see.