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Bitcoin BT*1 bulls have always been exuberant – that’s table stakes in crypto land. But lately their enthusiasm has morphed into something even more fanatical. It’s one thing to hype a market that’s making people rich, and another thing entirely to scream about its superiority while investors are getting hosed.

To their credit, the recent hype does look a little different. It isn’t littered with rocket-ship emojis any more, which used to symbolize the crypto sector’s astronomical growth. The goal now is to restore confidence by calling a bottom for the market’s ferocious downturn.

Bitcoin and ether, the two most popular cryptocurrencies, have tumbled in waves since November, and every time a new swell hits, the believers swear this one will set a floor.

“Feels like we have hit max pain and uncertainty in the crypto market,” Barry Silbert, the founder of Digital Currency Group, wrote last week on Twitter, which serves as a public message board for the sector. “We’re buying BTC here,” he tweeted, using bitcoin’s symbol. “Let’s go!”

These can be comforting words for anyone trying to make sense of the downturn, particularly so for unsophisticated retail investors. But the truth is it’s nearly impossible to call a bottom. Anyone suggesting a floor has formed is delivering marketing lines rather than any real analysis.

This isn’t something specific to the crypto sector. Analysts and investors have tried to call bottoms for stocks for many decades. There is an entire industry of technical analysts, sometimes referred to “chartists,” who make fancy graphs that try to show when the market is set to turn.

But for crypto the task is so challenging that’s there’s arguably no point in trying. The sector is so young that there are hardly any established norms.

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While the stock market is prone to bouts of exuberance, there are at least ways to measure its degrees of madness. The price-to-earnings ratio, or P/E, may be too blunt of a tool to make day-to-day trading decisions, but it is invaluable for a data set that spans decades. Over time we have learned that stocks valued at more than 15 times their earnings can be considered expensive, and anything trading below that level is cheap – though some industries have their own idiosyncrasies.

The psychological role such benchmarks play is often undervalued, because the behavioural-finance field, which helps to explain why humans make such irrational decisions, is still in its infancy. But the research is compelling enough to know that these markers are crucial when panic sets in, because they provide investors with a map of sorts.

The crypto sector, meanwhile, has yet to endure a full business cycle. And while bitcoin was created in 2009, so it has technically been around for more than a decade, it never really went mainstream until the pandemic hit. That means the industry exploded in popularity in an era rife with financial anomalies – ultra-low interest rates arguably being the most obvious.

Until recently, it was defensible to draw some conclusions based on bitcoin’s previous trading patterns, but any credibility for this argument disappeared when the rate hikes started. The crypto sector has never endured rising rates – and this cycle won’t be short-lived, so there is no holding out hope for a quick rate reversal in the near future. U.S. Federal Reserve governors have been making it clear that killing inflation matters more than anything else on their agenda, even if that means starting a recession.

Factor in the impact of leverage in the crypto sector, and calling a bottom gets exponentially more difficult. Last year, Michael Saylor, one of the most outlandish bitcoin enthusiasts, famously suggested remortgaging your house to invest in the cryptocurrency.

It isn’t just that debt has been used to invest in crypto assets, which complicates things now that borrowing costs are rising. There’s also almost no visibility into where the debt lies, or what has been pledged as collateral.

Some crypto lenders, such as Celsius Network, have frozen assets in the past few weeks, and still no one really knows why. That uncertainty is troublesome. If bitcoin has been pledged as collateral far more than was assumed, it could cause the sector to spiral downward because so many assets will be tied to something that has lost 70 per cent of its worth in seven months.

And then there is the looming threat of tighter regulation, which is a near certainty. Retail investors got caught up in the hype and suffered major losses, and that means more enforcement, and more rules, are coming because their losses often provide the political capital needed for a crackdown. Couple this with the reality that some of the fundamental arguments for buying cryptocurrencies, such as bitcoin serving as a hedge against inflation, are getting debunked and it is very likely there will be less demand for crypto on the other side of this rout.

The crypto sector has long prided itself on being substantially different from traditional markets, but there’s an old adage that applies to calls for market bottoms: Never catch a falling knife. It’s just as apt for this nascent sector – and crypto’s knife is particularly sharp.

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