Bear Market in Crypto

The bitcoin market is known for making people rich overnight, or for taking them to zero (the proverbial equivalent of both). Bear markets are a key part of the crypto cycle, and bear markets often don’t get the spotlight they deserve compared to strong bull markets. When we understand what it is to be in a bear market and the types of things that cause a bear market, we can reduce our exposure to risk and make better financial decisions.

This guide will help you to better understand what a bear market in cryptocurrency even means, what to focus on, and help you survive the bear market, while keeping in mind the bigger picture.

What Is a Bear Market in the Crypto Landscape?

A bear market is a period when the prices of cryptocurrencies have declined by 20% or more from recent highs for extended periods (weeks, months, and on occasion even over a year). Bear markets are often characterized by negative investor psychology, low trading volume, and fear in the overall market.

Crypto bear markets can be even more violent and emotionally charged than traditional financial markets. This is due to the new nature of the crypto industry, the low liquidity, and the fact that it consists of a high volume of retail traders.

Characteristics of a Crypto Bear Market

Here are some common characteristics to help you identify when you are bear market:

• Declining Prices: The prices of major coins, such as Bitcoin (BTC) and Ethereum (ETH), fall rapidly and are often sustained.

• Negative News Flow: The news is full of hack headlines, regulatory concerns, or bankruptcy headlines (e.g., the FTX case).

• Less Trading Volume: The longer the bear market lasts, the less people are trading or investing in cryptocurrencies because they have lost confidence in the market.

• Sentiment of “Extreme Fear”: The Crypto Fear & Greed Index shows that there is panic or hesitation; the market is not active.

• High Volatility: frequently, people take advantage of price drops, but during bear markets, prices rapidly drop, and rise at ridiculous rates too, commonly creating a fake-out.

What Causes Bear Markets in Crypto?

Many factors can trigger and sustain a bear market in cryptocurrency:

1. The macroeconomic outlook– Increased interest rates, inflation, and global economic downturns may cause investors to become risk-averse. During times of financial uncertainty, cryptocurrency is often the first asset to go since it is considered a high-risk asset.
2. Regulatory Uncertainty- When governments provide or consider severe regulations (like SEC lawsuits against cryptocurrency exchanges), investors lose faith in the market.
3. Bubbles & Excessive Speculation- Unreasonable bubbles during bull runs are oftentimes formed by exponential price increases. When they pop, panic selling ensues.
4. Hacking or Market Manipulation- Bear markets have been catalyzed when events like the Mt. Gox hack or the Terra-LUNA collapse destroyed billions of dollars of faith and value.

Are bear markets negative?

Not necessarily. Bear markets usually purge the ecosystem of those projects that had weaknesses or coins that were driven by hype and should now have more solid and reliable assets. Some of the best crypto projects, such as Ethereum and Solana, made considerable gains due to being in bear markets.

Investors look at bear markets to build positions, put time in researching deeper, and prepare for the next bull market.

How to survive a bear market in crypto 

To survive – and thrive – in a bear market, you will need to be patient, disciplined, and have a strategy. This is how you will do that:

1. Stay Calm in the Storm: Don’t Panic Sell– The worst thing you could do in a bear market is to panic sell out of fear. By selling a liquid asset in a shaky market, you lock yourself into a loss. Always take a moment to review the fundamentals before making any decisions!
2. Dollar Cost Average your investment (DCA)- Investing into the market with a modest sum regularly over time, distributes the volatility and reduces the risk of mistiming the market.
3. Strong Fundamentals – Use the bear market to research and put investment into projects that provide a real-world use, solid teams of trust, active development, and a community that’s loyal and committed.
4. Protect Your Assets– In bear markets usually expose scams and vulnerable platforms. These are times to use hardware wallets like Ledger or Trezor and not to store a large sum on exchanges.

   5. Build Your Knowledge– The perfect time to learn is now. Never stop taking in the latest news on market trends, crypto laws, and technology advances.

Historical Examples of Bear Markets

History, after all, is a perspective to consider: The 2018 Bear Market: Bitcoin skyrocketed close to $20,000 in December 2017 and plummeted past $3,200 by December 2018, incurring losses of more than 80%.

2022 Bear Market: Triggered by the collapse of Terra-LUNA and FTX bankruptcy, Bitcoin descended from peaks of about $69,000 to below $16,000.

Yet in both instances, the market came back and surpassed those levels.

What Comes After a Bear Market?

All major crypto bull runs have stretched after a bear market. After sellers have stopped, the smart money (institutional and retail investors alike) makes a quiet accumulation.

Eventually, renewed optimism occurs because of innovations, adoption, and better regulation. When this momentum starts building, it is the beginning of a bull market, which usually catches most unprepared investors by surprise.

Final Thought: Is It All Doom and Gloom?

Not at all. These bear markets are common to every financial cycle, not only for stock markets and commodities but also in crypto. However, for the crypto markets, these could become a time for you to pause, reassess, rebalance, and refine your investment approach.

Crypto bear markets can reward the patient and the technically informed while fostering resilience, though short-term pain. Stay focused on long-term plans, fundamentals, and risk management, and you stand to win big once bulls come back.