The year 2023 has started on a high note for the financial sector, as the stock market has been carefully navigating the current trends. With that insight, is the current crypto bear market rally currently in the disbelief phase, signaling another bull run, or could the market come crashing down?
In 2022, Wall Street strategists were certain that the stock market could sustain an upward trend. Yahoo noted that it was Morgan Stanley’s Chief Investment Officer, Mike Wilson, who continuously warned against trap rallies. A warning that proved correct. With cryptocurrencies typically following the trajectory of stocks, could a similar warning be applicable here?
Crypto and Stocks
2022 was truly a horrendous year for much of the financial sector. Specifically, it was crypto that took a massive hit. Some of the biggest digital assets in the industry, including Bitcoin, had suffered incredible losses, reaching nearly $15,000 in the month of November.
Conversely, the start of the year has proven to have a taken positive turn. Undoubtedly, we have been privy to a crypto bear market rally, with that same Bitcoin price surging to well over the $20,000 threshold that seemed so unreachable last year.
Still, with such a quick turnaround, there are those who maintain a cautious journey through the current landscape. This leads to the important question — is crypto in the “disbelief phase” in the psychology of a market cycle, or could the market come crashing down?
In the traditional stock market sector, the feeling is similar. 2022 saw the S&P 500 sink roughly 20% at the end of hte year, after three consecutive years of double-digit returns according to Yahoo. 2021 had been a soaring year and had quickly turned south. Now, the traditional financial sector is worried about repeated mistakes.
Mike Wilson has stated his concern via a report from Yahoo. Stating, “The final stages of the bear market are always the trickiest, and we have been on high alert for such head fakes,” in a research note from this past weekend. Adding “Suffice it to say, we’re not biting on this recent rally because our work and process are so convincingly bearish on earnings.”
Crypto and the Disbelief Phase
The digital asset sector so often follows the same trends as the traditional stock market, leading to concern over the current trajectory. Specifically, if the current market developments could indicate a beginning of a trend upward, currently in the “disbelief phase.”
The “disbelief phase” is a cryptocurrency market rally that is defined as one where investors believe the rally will “fail like the others.” A similar event happened in 2021 surrounding Bitcoin, in which Cointelegraph noted that the price was following a similar phenomenon. Stating, “After a comedown from a macro high, ‘disbelief’ likewise signals a reawakening after a protracted period of losses.”
Subsequently, concerns remain over whether or not the disbelief phase is a viable label for the current trend, or if the market could come crashing down once more. Currently, macroeconomic factors are unclear.
Inflation numbers from the end of 2022 point towards a less volatile market for the time being. Alternatively, maintaining caution is key as the market continues to adjust to the rising prices and undeveloped actions of the economy.