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Summer Rally Spurs Hopes Bear Market is Shifting into Bull Run — But is It?

Tempting to Believe a Shift is Under Way But Economy Clouds the Picture

Summer Rally Spurs Hopes Bear Market is Shifting into Bull Run — But is It?

When does a bear morph into a bull? That’s the question crypto investors are asking as the fire and brimstone of the last three months has suddenly given way to a rally.

This month, the market seems to be gone on a run. Ether has skyrocketed an astonishing 50% in the last 30 days, Bitcoin has popped 18%, and other DeFi blue chips — Polkadot, Uniswap, Aave — are posting gaudy performances of their own. In a throwback to last summer, Solana has soared 80% in the last month.

Ether has outpaced Bitcoin since mid July. Source: Defiant Terminal

Now the question on everyone’s mind is: Is the worst over? Is it time to get back in?

While it’s hard to navigate the crosscurrents of a shifting market, studying previous market downtrends is always helpful to give us some reference as to what the end of the bear would look like. Yet that’s easier said than done. “We cannot really draw parallels between these two bear markets,” said Kevin Murcko, founder and CEO at Coinmetro, a crypto exchange based in Estonia. “On a macro level, the 2018 bear market didn’t have to deal with record high inflation rates as well as the macro-economical and geopolitical storms we are currently facing globally. ” 

Different Than 2018

Murcko said the distribution of investors is vastly different now. Back in 2018, the market was dominated by retail investors. “Today, we have a large proportion of institutional investors doing the same thing they do in every market -— leading the narrative, selling into buyers and buying into sellers. ”

The 2018 bear was very similar to the dot-com bubble because many initial coin offerings proved to be as vacuous as those infamous internet 1.0 ventures 22 years ago. So after investors lost confidence in the market, everything crashed.

The Merge Draws Ever Closer as Ethereum Passes Another Critical Test - The Defiant

The Merge Draws Ever Closer as Ethereum Passes Another Critical Test - The Defiant

Passing the latest in a series of critical tests ahead of The Merge, Ethereum completed the tenth mainnet shadow fork on July 27. 

The Merge Draws Ever Closer as Ethereum Passes Another Critical Test - The Defiant The Defiant

Even so,  the seeds of DeFi were planted during the crypto winter from 2018 to 2020. 

“Most of the projects born in the ICO boom were built on Ethereum, which was still very immature around that time,”  Timo Lehes, co-founder of Swarm, a Berlin-based regulated crypto exchange, told The Defiant. “There wasn’t much real engagement or activity on the network”  If DeFi is built on a solid foundation, does that mean the summer rally augurs a return to bullish ways?

Clouded Picture

Murcko isn’t sold on the idea. Given the clouded economic picture — the U.S. just recorded its second straight quarter of contraction in industrial output — the rebound may not be a sustained rally but just a correction, he said.  

“Retail investors are behind this move, while institutional investors are selling into them.,” he said. “However, the former has much smaller pocketbooks. When they are done buying, we will see at least a retest of lows or, more realistically, set new range lows.”

So how do we tell if the worst part is over?  There needs to be a change in fundamentals.

“Until we see lower inflation numbers, equity and bond markets coming back to life, as well as market sentiment becoming much more positive, we cannot be sure that the worst is over,” says Murcko. “My advice would be to find assets you believe are connected to companies, projects, or foundations that are actually doing what they have promised to do, have strong fundamentals and a proven track record. ”