Over the past several months there has been no shortage of timeline speculation regarding the current cryptocurrency bear market. Venture capitalist Albert Wenger recently wrote a few interesting thoughts on the situation.
Stuck in a bear market trend
Bitcoin sits at a price of $3,450 according to Blockmodo data at the time of writing. Crypto’s largest asset has struggled to break out of its bearish trend for most of 2018, with no definitive end in sight. Negativity for bitcoin is logical as the coin is down over 80% from all-time highs last year.
Forbes interviewed ShapeShift CEO Erik Voorhees a few months ago, in which he commented on 2018’s crypto bear market.
“In terms of price I think we’ve neared our low, however we could very well stay here for a while before a bull market returns. That being said, crypto is crypto. This bear market could last for several years, or we could see it end in a month or two. Neither would surprise me.”
Many crypto participants and speculators cannot help but compare the current bear market to the last one seen between 2013 and 2015.
This current crypto bear market has just started its 49th week.
BTC has retraced 82% thus far.
— rektcapital (@rektcapital) November 26, 2018
In the article, Wenger mentioned the correlation between returns and uncertainty. Where large institutional investments are concerned, the aspect of perception plays an important role. “[I]t is one thing to lose money on a trade, it is another to lose money on a trade that people have tried many times before and is now widely ‘known’ to be a money-losing trade,” Wenger explained.
In general, potential investors must weigh general risk on their investment. But in a major bear market situation like crypto, they must also weigh the added risk of market perception.
Current perceptions for cryptocurrency markets include negativity and money loss. Wenger mentioned, “[i]f the others [public perceptions] are right, then not only will returns be below the benchmarks but there is also the question: why did you think you were smarter than everyone else?”
Wenger explained a similar situation in the early 2000s after the infamous dot-com bubble burst. He recounted the struggles one of his funds saw trying to raise money in 2001. Big players did not want to invest in something thought to be a trivial dead end.
He went on to discuss crypto application for these points, and a repetition of history. This cryptocurrency market crash is different than all previous ones. This time around, things are the same in terms of pure investment risk numbers, but different from the aspect of perception.
The last bull run gained more publicity than the crypto space had ever seen before. Institutions and big players got in on the action, while mainstream media covered the space frequently. Wenger noted these differences as important to how the current bear market will play out.
“So to think that institutional investors will [be] piling in right now is to ignore perception risk. To invest now means taking both return risk and perception risk. That’s why climbing out of the winter of the burst Dotcom bubble took time and that’s why the same is likely to be true for crypto.”
More money in the game
The 2013 cryptocurrency bull market turned bearish after achieving a total market cap high of about $15.7 billion, according to Coinmarketcap.com data. The most recent bull market saw a high of just over $800 billion in market cap.
Climbing out of the 2013-15 bear market took much less capital. The total market was a fraction of even the current market cap size. Investors could move that market’s direction with far less money than would be required now. To substantially move the current crypto market would take significant amounts of money. Institutional players have that kind of money. But as Wenger explained, those players may be hesitant to enter the market for a while going forward.
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