By: Damian Okonkwo
What is the bear season？
The crypto bear season is the time when the prices of various Cryptocurrencies including Bitcoin and altcoins drop massively due to tight monetary policies such as interest rate hikes which causes investors to withdraw from risky assets and invest in government bonds and other less risky assets with fixed returns, especially the strong currencies.
Major causes of the crypto bear season
A. Tight monetary policies: This refers to the central banks' policies of reducing the amount of money in circulation through aggressive interest rate hikes. Hiking the interest rate often pushed investors to withdraw from risky assets and to divert into bonds and other strong currencies with the highest interest rate for instance the US dollar. This affects the crypto market negatively. For instance, the strong bear season witnessed since the beginning of 2022 has been largely caused by the aggressive interest rate hike by the Fed and other countries' central banks in the quest to curb the rising inflations.
B. Tapering: This is the strategy used by the Central Banks to reduce the amount of money in circulation by reducing its balance sheets and slowing down its purchase of treasuries and other mortgage-backed securities. Often it is seen as the opposite of quantitative easing.
C. FUD: The term FUD is an acronym for Fear, Uncertainty, and Doubt in the crypto market. Often panic and fears caused by any attempt by the government and other regulatory bodies to interfere in the crypto industry could throw the market into a bear season.
D. Taxations: Another significant factor that could throw the crypto market into a bear season is when the government decides to increase the tax for crypto trading. High taxes placed on crypto trading often caused investors to lose appetite for crypto trading resulting in a bear season.