What is a cryptocurrency bear market?

A bear market begins when a cryptoasset trades below its previous high by 20% or more and remains lower for a period of time. Usually, the decline is accompanied by great pessimism about future short-term results.

Although a 20% decline is the starting point for a bear market, it is not always a reliable criterion for characterizing it by itself. Cryptocurrency prices are known for their volatility almost all the time. A 20% drop can happen just on a bad weekday. However, a bear market is not the same as a healthy correction, which can also be called a pullback. Although the correction can be as high as 20%, it is usually closer to a 10% drop from the extreme high. Corrections often last several months. Short market corrections are more common than bear markets. Also, corrections can occur with a specific asset or index, and bear markets have a wider range of exposure. Another key difference is how long the fall lasts. While declines associated with corrections are quickly recovered within months, cryptocurrency bear markets can last for years. When the lows are actively declining, it is still a bear market. When the drop decreases and there are no more significant fluctuations, it is called a crypto-winter. “Crypto winter” is an apt term, as the market essentially freezes during this time. In 2018, there was a notable period of cryptowinter, and there was another one a few years earlier. These periods of crypto winter will be discussed in more detail below in the section on the duration of cryptocurrency bear markets.

How to identify a cryptocurrency bear market?

Many investors abandon purchases during the “bear run” in the cryptocurrency markets. The previous section described the basics of the bear race in cryptocurrency markets. However, a closer look at their key points can help investors determine whether they are entering a cryptocurrency bear market, crypto winter, or correction. Here are the main features of cryptocurrency bear markets to analyze

Extreme fear and pessimism

Fear and pessimism reign in cryptocurrency bear markets. These moods are longer and more pronounced than in periods that lead to panic sales. To measure market sentiment, there is a Cryptocurrency Fear and Greed Index, with scores ranging from one to 100. Lower scores reflect greater fear. Indicators below 49 points are more timid, and indicators in the range from 50 to 100 points are, as a rule, more optimistic.

Low trading volume

Low activity is often the result of extreme fear and pessimism in cryptocurrency bear markets. During a “bear” market, trading volume usually drops significantly as investor confidence evaporates. However, some still try to sell assets, just to prevent further losses. When the trading volume remains low and more like a flat line with little changes, this indicates the onset of crypto-winter. Due to concerns that some exchanges may be subject to “laundry” trading that falsely inflates trading volume, more and more investors are now turning their attention to decentralized exchanges (DEX) in search of reliable indicators. It is more difficult to falsify volume on decentralized exchanges.

Lack of investor confidence

When investors lack certainty, they trade less. The cryptocurrency bear run is accompanied by low levels of confidence in several currencies. For example, in May 2022, a lack of investor confidence spread across the crypto world after Terra’s LUNA and TerraUSD stablecoins imploded despite being a large-cap project. Stablecoins are supposed to remain liquid and retain their value to enable transactions with other cryptocurrencies. However, Terra fell sharply, losing market value overnight. The debacle of the Luna stablecoin showed investors that stablecoins can carry the same cryptocurrency risks without any of the corresponding benefits.

Unfavourable macroeconomic conditions

As economic stability affects confidence and the availability of money affects trading volume, adverse macroeconomic conditions can lead to a bear run in cryptocurrency markets. Bear markets have traditionally been accompanied by a combination of an inverted yield curve, rising inflation and rising interest rates. Longer periods of such adverse macroeconomic conditions can turn crypto bear markets into crypto winters.

Increased intervention by regulatory bodies

Entering the cryptocurrency market is associated with complex regulatory issues. The world of regulation is in constant motion. Startups entering the market typically consult legal counsel to better understand the specific areas of regulation that affect them. A change in regulatory and legal regulation, as well as a simultaneous change in other factors discussed in the previous sections, can contribute to a “bear run” on cryptocurrencies markets Additionally, in the past talk of increased government regulation of cryptocurrencies has led to bearish trends amid growing fears.

Unhealthy levels of leverage

Traders use leverage to increase position size, and even increase capital liquidity. During the onset of a bear run in cryptocurrency markets, leverage ratios can be very high, leading to increased market volatility and potentially much larger losses.

How long do cryptocurrency bear markets last?

As noted earlier, cryptocurrency bear markets have longer periods than corrections. How Long Do Cryptocurrency Bear Markets Last Today? Don’t forget that cryptocurrency is relatively new, so there aren’t many benchmarks and historical data that you can use. How long do cryptocurrency bear markets last on average, based on historical data?

One of the early cryptocurrency bear markets was observed from January to July 2012. The next recovery period, which lasted less than a month, gave way to another bear market that lasted until December. The three key events leading up to this included the hacking of the Mt. Gox to steal millions of dollars in Bitcoin; lawsuits after hacking; and a Ponzi scheme that stole hundreds of thousands of bitcoins from investors. At that time there was a collapse of 93%. Bitcoin has recovered after gaining a lot of popularity among investors and becoming more prominent in the mainstream media.

Additional bear markets

There was another 415-day bear market between 2013 and 2015 when the Mt. Gox, and Silk Road was shut down by the government. This period became the crypto winter, when Bitcoin fell by about 85%. Because investors knew from the previous bear market that Bitcoin was likely to come back strong, the market recovered as a result. Some innovative technologies were developed during the bear market. Ethereum hit the market in 2016 and made cryptocurrency investing popular again. Bitcoin soared from less than $1,000 to more than $19,000 in 2017.

The key reason for the last crypto bear market of 2018 was the rumor that the SEC will visit the founders of initial coin offerings (ICOs). Back then, most people only bought Bitcoin with regular currency. Investors used their dollars to buy Bitcoin, received Ether (ETH) for it and used it to buy ICOs. The prices of all cryptocurrencies have soared and the demand for ICOs has increased. Then, when it ran out, the entire market followed suit, leading to the crypto winter. Today, companies are more prepared. In addition, there are now more active companies in the market and more factors to consider. Bitcoin surged in December 2020 as investors began buying it to potentially deal with inflation caused by the pandemic. Technological innovations that have made cryptocurrencies more convenient and affordable have also contributed to the transition to bullish growth in 2021.

In the future, investors can also take into account experts’ predictions about cryptocurrency. How long do cryptocurrency bear markets last according to expert forecasts? Answers vary depending on the sources. However, taking into account the factors listed in the previous sections, along with various expert predictions, can help investors form a more realistic picture of how long a bear market or crypto winter might last. Some experts say bull market periods often begin after surges in the liquidation of cryptocurrencies and stocks in financial markets.

What shall I do?

There are several steps investors can take to survive cryptocurrency bear markets and potentially make money. Regardless of whether this period turns into a prolonged crypto winter, investors can follow these strategies to better manage their overall risk and portfolio.

Keep your emotions under control

Cryptocurrency bear markets create an emotional roller coaster for many investors. In the face of constant change, it’s easy to start making potentially harmful decisions based on emotions. When a bear market leads to a crypto winter, emotions can be especially volatile for investors. Fear and greed contribute to bad decisions, so investors should be aware. By combining smart DCA and diversification strategies, traders can limit emotional decision-making that can harm them.

Trade with more discipline

Many people today are short-term traders. Raising stop-loss levels can help ensure higher profits on trades when they are executed at optimal prices. In addition, in the cryptocurrency market, which is going through a bearish period, it is important not to aspire to large sums of profit. It is better to periodically receive modest profits. Although there may be fewer big profits, there will still be profits. Relying only on speculative price growth is unwise. If you trade intraday, you are able to adapt to every phase of the market and gain
income is stable.

Dollar cost averaging in projects with strong fundamentals

With dollar cost averaging (DCA), investors buy assets in installments over a period of time. This approach helps eliminate the effects of price changes due to volatility, average prices. While this strategy helps attract investors to projects that are fundamentally sound over time, it can also help wait out a period of consolidation. DCA investors should focus on projects that have engaged communities, active development and realistic roadmaps showing where they will go in the future.

Diversify your cryptocurrency portfolio

Financial advisors recommend diversifying your portfolio during bear markets so that not all investments are in cryptocurrencies. With a diversified portfolio, you are less likely to suffer a major disaster if one of your assets goes bad. However, crypto investors can also diversify their crypto portfolios by looking to invest in new projects while paying attention to coins with a good history. It is effective to look at crypto projects that are still in their infancy. New projects include DAOs, in which anyone can fully participate in the construction of the project and share in its profits. Exercise of due diligence and careful study of projects in advance are both important factors in developing a strategy in bear markets.

Consider low-risk strategies such as staking

During a cryptocurrency bear run, staking is an easy-to-use strategy that increases long-term portfolio value. In addition, staking helps to reduce the tendency to get fixated on daily price changes. When investors get caught up in swings, they run a greater risk of making emotional decisions. Staking can help you earn extra income during cryptocurrency bear markets while investors wait for them to change. Many layer 1 protocols allow staking of their own tokens on their networks for profitability. For best results, strategize after selecting projects that are fundamentally sound (AND following the previous steps in this section).

Generalisation

This is by no means the first nor the last cryptocurrency bear market. In their early development, all asset classes experience periods of ups and downs. This time, it was more difficult to avoid the bear market as the crypto became popular and mainstream in the media. It seems like everyone has an opinion about crypto now. Most focus on price. Yes, it is difficult not to do this, but we risk losing sight of the main thing by focusing our attention on the price.

Bear markets sharpen our minds and we can learn a lot.

Bear markets hurt, but I also take some comfort. Maybe because I’ve already experienced a few and now somehow I’m waiting for them. And now I’m inspired by crypto like never before. Why? The price, especially of such a young and speculative asset class, is not the main indicator of the state of the industry. We don’t even have good frameworks for valuing cryptoassets.

The problem is that crypto is traded 24/7. The crypt never sleeps.

This way you are constantly thinking about whether prices will go up or down and trade. Studies have shown that the less often you check your portfolio, the better for you in the long run. Easier said than done. “When moon?”. Over the past year, many cryptocurrency pairs have completely forgotten about the existence of gravity and are now returning to their orbit. It is not yet clear whether prices have fallen. The anchor effect is when you rely on the previously seen price of something. And this is very relevant for crypto. BTC reached $20,000 and ETH hovered around $1,000. And again: “When moon?”. This is the wrong question. Forget about the price and get back to the notes about why it should be worth anything at all. Question even the most basic assumptions and be open to many scenarios. Your job is to think in terms of probabilities, not binary outcomes. There is still a non-zero probability that BTC will reach $0 and a probability that it will reach $250,000.

If you’re comfortable holding the investment for the long term, that’s fine because you’re ready to face the volatility inherent in an emerging asset class that’s in search of a fair price. On the other hand, it is very difficult to ignore the price tag of crypto, it constantly pushes you to take action. It’s an emotional roller coaster. Evil games with your mind. Sometimes the best action is no action at all.

Crypto is a new asset class, an early stage venture with liquidity. The investment paradigm is changing. Early stage investments are risky and go through a pricing stage. I have learned that not having an idea of the price at which you want to sell your investments can be dangerous and leave you more vulnerable to impulsive actions. We pride ourselves on “HODL-ing”, but we secretly regret not selling at the peak of the market. Wishful thinking.

Timing the market is an impossible task. My approach is to develop investment ideas and average the entry price through incremental sales and purchases. Bear markets sharpen thinking. If you don’t have a clear, developed idea, a sharp jump in prices will knock the ground out from under your feet. Crypto will always be tempted by easy profits, FOMO, technical analysis, magical timing and other fallacies. Form your opinion. The best way to do this is to remain unbiased and constantly learn from others.

Crypto is an open source community built on the principles of collaboration. Take advantage of this.

It still amazes me that for the first time in history we have a system that works without a “trusted” intermediary. What’s new about Bitcoin is an elegant coordination mechanism that has never been possible before. This open, permissionless system works without the need to trust market participants and does not rely on intermediaries. This could disrupt old industries and, more excitingly, open up new possibilities, such as scarce digital assets or programmatic Universal Basic Income (UBI). There are many uses that we haven’t foreseen yet, and I’m excited to see more projects that are building a future that can change many ways we live.

By far the best return on investment in this market was the intellectual stimulation I got from working with an incredibly talented and diverse group of people. I can’t think of an industry that attracts so much talent.

Human capital formation is a better barometer than price of where cryptocurrency is now and where it’s headed — and it’s stronger than ever. Today, we have more innovative projects that are built and delivered faster. Many of them are well capitalized to survive in this market. Talent from Silicon Valley, Wall Street and the ivory towers of academia is increasingly entering the space. It captured the minds of an entire generation.

So the next time someone asks you about cryptocurrency prices, don’t get annoyed. No one wants to be reminded that we are in a bear market. Many come here for easy profits and end up staying for a long time when they realize that there is much more to it than monetary gain. If cryptocurrency is to recover and thrive, we need more people to participate and get involved. Speculation and market cycles are important because they invite new entrants into the market.

Volatility is inherent in any developing market. Buckle up and focus on what matters most: your studies. It’s worth it. The ROI is endless.

So remember, keep an open mind. Play devil’s advocate and don’t dismiss criticism. There is a lot of it in cryptography — as a reflection of potential. It’s easy to become a fanatic. Think in terms of probabilities. There is still a very real possibility that the cryptocurrency will go to zero. Constantly question your beliefs. With this rate of innovation and new information, if you’re not calibrating your assumptions often, you’re doing something wrong. I’m not suggesting that you necessarily act on new information, but don’t dismiss it. Be open-minded. Strong beliefs are weakly held.

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