Distinguishing Between 'Dip' and 'Bear Market': How to Identify Crypto Market Trends

In the crypto world, 'buying the dip' may sound appealing, but not every price drop is an opportunity to accumulate. It's important to differentiate between a 'dip' – a temporary correction – and a 'bear market' – a prolonged downtrend, to avoid falling into the 'catching a falling knife' trap. Below are the criteria to note:

1. Decline Level Dip: Typically occurs within a 10-30% decline in a rising market. Mainly caused by short-term panic or profit-taking. The market tends to recover quickly, within a few weeks to a few months. Bear Market: Characterized by a significant decline of 50% or more, occurring gradually over many months or even years. The reasons may be macroeconomic issues, policy changes, or loss of confidence from the investment community. Example: If Bitcoin (BTC) drops by about 15-25% while altcoins drop sharply to 40-50%, it could just be a “dip”. Conversely, if BTC drops by 50-80%, you may be witnessing a “bear market”.
2. Event Time Dip: These are short-term price declines, which can last from a few days to a few weeks, or in some cases up to a few months. For example, in May 2021, BTC dropped by 40% but made a strong recovery in November of the same year. Bear Market: This is a prolonged period of price decline, often lasting for many years. The market loses confidence and requires a long time to recover, as in the case of BTC taking more than 2 years after the 2018 crisis. Note: Each type of coin may have different recovery speeds. For example, $ETH often leads the recovery process, while small-cap coins like $LINK may deliver superior performance when the trend reverses.
3. Behavior of Large Organizations Dip: When there is only a slight adjustment, the “whales” and large organizations often take advantage of buying opportunities to 'buy the dip'. On-chain data may indicate that large wallets are accumulating tokens. Bear Market: During a prolonged price decline, large organizations often sell off instead of accumulating. When the volume of trades exiting exchanges increases, it is a warning sign of market imbalance. Suggestion: Track the wallets of "whales" across platforms like Arkham and check the amount of money flowing in/out of exchanges. If you see large institutions selling off, consider withdrawing or switching to stablecoins.
4. Check Market Sentiment Dip: Despite the initial panic, most investors still maintain faith in the market. Influencers and crypto experts continue to actively discuss and provide optimistic views. Bear Market: The general market sentiment turns pessimistic; individual investors withdraw and the message 'crypto is dead' begins to surface. The absence of optimistic voices is a sign that the market is in a deep state of weakness. Tips: Pay attention to the developments on forums, social networks, and media channels. Even optimistic people turning pessimistic could be a sign of a bear market. Conclusion Not every 'dip' is a great buying opportunity. Distinguishing between short-term corrections and prolonged downtrends is crucial for making smart investment decisions. Sometimes, holding funds in stablecoins may be a safer choice during periods of high volatility.