These 2 Metrics Are Flashing Green for Bitcoin. So Is the Bitcoin Bear Market Finally Over?
Key Points
During midterm election years, October and November have been the months that averaged the largest gains for the stock market, and gains on Wall Street also support Bitcoin's rise.
Other than during the COVID-19 pandemic period, whenever Bitcoin has crossed back above its 50-week moving average, that has been a strong signal that its cyclical low is behind it.
Long-term investors should focus less on timing their investments in Bitcoin correctly and more on understanding the compelling traits that make it a unique asset.
Just when you thought it was dead, Bitcoin (CRYPTO: BTC) is proving the naysayers wrong. From its peak in October last year to its 52-week low on July 1 this year, the digital asset tanked by 53%. Since reaching the bottom of that cyclical trough, however, it has climbed by 47% (as of Sept. 23). Now, much of the chatter in the crypto space suggests that the worst days are in the past.
So, is the recent Bitcoin bear market finally over? Astute investors should pay attention to these two metrics that support the case for optimism.
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Look to the stock market for assurance
According to research compiled by Carson Group's Ryan Detrick, during years with U.S. midterm elections -- like this one -- October and November are the months that average the highest stock market returns. The data he reviewed goes back to 1950, so it's certainly convincing.
That bodes well for how the S&P 500 index will perform in the coming two months, and it's already up 13% year to date. According to the data, the benchmark index has averaged gains of 3% and 2.7% in October and November, respectively, during midterm years.
Stocks are considered a risk-driven asset class. As investors pile into equities, that trend also bodes well for cryptocurrencies like Bitcoin. Over the past five years, the performance of the leading digital asset has had a strong positive correlation to the S&P 500 index. In other words, whenever the stock market rose, it's more likely that Bitcoin was rising, too.
With October just around the corner, we can anticipate that the broad historic trends could help propel Bitcoin forward.
Bitcoin crossed a key threshold
Another metric to watch is Bitcoin's 50-week moving average. On Sept. 20, Bitcoin climbed above that level. Joe Consorti, a well-known Bitcoin and macro analyst, conducted an analysis that should turn the pessimists into optimists.
Throughout the crypto's history, whenever Bitcoin has crossed the 50-week moving average to the upside, the bear market cycle's low point was behind it 75% of the time. That's a strong hit rate.
If we exclude data from 2020, while the COVID-19 pandemic was ravaging the economy and financial markets, the hit rate rises to 100%. So, unless another global health crisis pops up, we could be at the start of a new upcycle for Bitcoin.
Expect the unexpected
While these reasons for bullishness might push you to allocate more of your portfolio to the leading crypto, perhaps through one of the many Bitcoin spot exchange-traded funds, it's important for investors to avoid putting too much weight on any single metric. It might be obvious, but no one knows what will happen. Predictions based on history can provide a sense of false certainty about the future.
Investors should expect the unexpected, especially with a volatile asset like Bitcoin. Changes in macroeconomic policy or industry trends can have notable impacts on its performance.
Rather than trying to figure out if the bear market is over and a new bull cycle has begun, the wiser points to focus on are the fundamental traits that make Bitcoin a unique asset to own. It has a first-mover advantage in the crypto industry, a strong brand, and network effects that support high liquidity. It's also fully decentralized, and there is a ton of innovation happening in the surrounding ecosystem.
Most importantly, Bitcoin is scarce, and has a fixed maximum supply of 21 million Bitcoins. Whether the recent bear market has ended or not, investors who have a time horizon of a decade or more should have some portfolio exposure to Bitcoin.
Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.