If you are always waiting for crypto prices to dump to confirm a downtrend, then you’ll continue to hurt your portfolio. But don’t worry! In this article, you will learn about the critical bear market signs to look for so that you can exit the market at the right time.
7 Major Bear Market Signs
Increase in Stablecoin Supply as On-Chain Activity Drops
If stablecoin supply increases, but network activity, such as trading on decentralized exchanges (DEXs), declines, then that’s a clear sign that crypto users do not intend to participate in the markets.
So, if you notice that the number of transactions and trading volumes on decentralized exchanges is reducing, then traders’ interest in trading non-backed cryptocurrencies is likely fading.
DEX Incentives Rise, But Trading Volume Does Not
Typically, when sentiment on crypto turns sour, decentralized exchanges offer incentives to keep users around. This technique works well in a bull market. However, if the incentives are rising but trading volume is declining, it is a sign that cryptocurrencies have become less attractive to users, so it would be wise for you to stay away from the markets.
Volatility Increases Without Any Liquidity
Another major sign that the crypto market is turning bearish is when mid-cap digital assets experience wild price swings without sufficient liquidity. In such cases, even a small trade is subject to high slippage. That’s because traders have drained liquidity as they make their way out of the markets.
Different Prices for Token Pairs Across Blockchain Networks
In a bull market, you are likely to notice uniform pricing of tokens across multiple blockchain networks. However, when the bear market begins, you will see different prices for those tokens across Layer-1s and Layer-2s. While this situation presents opportunities for arbitrage trading, you should keep in mind that liquidity is flowing out of those coins; hence, the price discrepancies.
Increased Outflows From Liquidity Pools and Lending Platforms
It is vital to monitor keenly the activities of crypto whales who keep their money in lending protocols and liquidity pools to earn passively. If you notice large withdrawals from the pools or lending platforms, such as Compound ot Aave, it could mean that the whales are de-risking. In this case, do not wait for massive red candles to exit. Instead, follow the smart money moves.
Hype Around New Token Launches Fades Quickly
During bull markets, new coin launches excite users, and the hype around them tends to last for an extended period. However, in the early days of a bear market, the buzz around a new token vanishes quickly, even if it’s a solid project. Moreover, token launches via airdrops in bear markets experience sharp price drops because users receive and dump their tokens almost immediately, as they do not anticipate further price increases.
Increased Bridge Outflows to Centralized Networks or Stablecoins
One of the clear signs of a bear market is when capital exits decentralized blockchain networks and moves to centralized networks, like BNB Chain, or when bridging protocols witness a spike in conversions of non-banked tokens to stablecoins issued on leading blockchains like Ethereum.
As a crypto trader or investor, consider such moves as exits, not rotation plays.
Bear Market Signs That Do Not Mean Much
Several signs can trick crypto users into thinking that the bear market has started, but they are actually irrelevant. They include:
1. Price Dips: When Bitcoin drops, say 20%, it is easy for you to think that the bull phase is over. But that’s not the case, as the coin has bounced harder several times in the past after dropping by significant margins.
2. Regulatory challenges: Many traders may panic-sell when they see regulatory authorities going after crypto companies, as they consider the lawsuits as a sign of a bear market. However, in many instances, the markets experience initial drops and then recover after a few weeks.
