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The Investor’s Guide to the Crypto Bear Market

Oskar Kallas
Oskar Kallas
a year ago
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The bear market is not something that any crypto investor likes to see. With an explosion of popularity in crypto and investors seeking opportunities to make as much money as they can. By attempting to capitalize on the ever-growing number of tokens and cryptocurrencies (in the way of creating new exchanges, for example), the so-called crypto winter is bound to happen.
It does not mean that once the crypto bear market happens, you should stop investing in crypto and look elsewhere. There are certain takeaways from this occurrence, which is why we are writing this investor's guide to the crypto bear market.

What Is Bear Market?

In short
The bear market is when most crypto assets experience a dramatic drop in their price for a prolonged period of time.
Bear market is essentially a timeframe in the crypto markets when virtually all assets experience a large drop in value. This is usually caused by a large disbalance between supply and demand, meaning that big investors or just casual HODLers start to massively sell their assets.
This happens at a high price, and large trading volumes mean that the supply that is up for grabs becomes incredibly bloated, whereas the demand for such crypto assets drops, causing a price shift from an all-time high to, possibly, an all-time low.
It is the polar opposite of the bull market, in which assets on the crypto markets are rising in their value and keep a somewhat normal balance between supply and demand. The prices tend to rise, not fall, as happens in the bear market. Assets usually experience all-time-high prices during this period and relative stability, for that matter.
The phenomenon of bear markets can be spread through multiple stages or phases, which can be characterized by using the good old Bitcoin:
  • At first, there are high prices for a certain asset. Bitcoin, during its high price peak, was valued at almost $68 000 per single BTC. The prices remained at a somewhat steady high point, averaging at $55 000 all throughout 2021.
  • The second stage is indicated by a decrease in trading volumes and an overall decrease in the pricing of the asset. This happens because initial buyers see an opportunity to net a hefty profit and do an exit. With Bitcoin, this happened in early 2022, when the price started to drop steadily (alongside trading volume) from the high point. At this stage, BTC price was around $36 000.
  • In the third stage, traders who bet and speculate on price fluctuations join in, hoping to get massive profits over the occurring price drop. This creates inflation of the price of the assets and a larger trading volume. With Bitcoin, this occurred during February and late March of 2022, with the price going up from $38 000 to around $47 000.
  • However, these increases are rather small as investors notice that jumping prices are not there for long, meaning further short selling with day trading and so on. The aforementioned peak in the price of Bitcoin on the crypto market was the last one so far. The price is steadily going down and is just a mere $17 000 per BTC, signifying a bear market trend with the lowest price (in recent times) in November 2022.
  • The final stage could be considered a recovery one. As the dust settles, if a certain crypto asset manages to survive this period, it should experience a rise in price, or at least a more certain stability at a low price point (meaning that there are no further huge decreases in the price).

Relation to Non-crypto Economics

In short
The traditional bear market is a term used when discussing stocks and the stock market. The meaning is the same, and there are even correlations between crypto bear markets and stock trends.
"Bear market," as a term itself, is not unique to crypto. It was first started to be used (and still is used there) when talking about the stock market. The meaning, however, remains the same. In the stocks world, bear market occurs when there is a steady and long decline in the stock market.
It happens when a sudden switch from investor happiness and optimism to pessimism, fear, and panic. The rule of thumb in this regard is a steady price decline, standing at around 20%, for at least two months. This period is called bear market.
The key examples here would be the somewhat recent 2008 financial crisis that affected the whole world, leading to extreme price drops in all of the stock markets. Also, the panic buying/selling during the onset of the COVID pandemic, and, of course, the 1929 Wall Street crash that caused the Great Depression.
Interestingly enough, the stock market trends tend to sometimes correlate with the crypto bear market ones on a larger scale. The price drops in cryptocurrencies correspond on charts to those that are experienced on larger stock exchanges, such as the NASDAQ, a very influential stock index.

Historical Examples of Crypto Bear Markets

In short
There are setbacks related to both Bitcoin as well as other cryptos; however, as the crypto markets have macroeconomic tendencies, it is natural that ripples happen regardless of which currency is affected. Each major change is bound to create a global effect.
Bitcoin is arguably the most popular cryptocurrency still going around and the first crypto coin to go mainstream, so to say. There were multiple crypto bear markets related to it, all with different causes that are worthy of interest.

The Onset of “Crypto Winter”

The year 2018 was not a successful one for Bitcoin and the investors in it. This portion in time was widely dubbed as the "Crypto winter."
It was an incredibly large crypto bear market that had multiple causes to it. In other words, one blow after another caused the price of BTC to plummet from an (at that time) all-time high of around $20 000 per Bitcoin to around $3 000.
What started this bear market trend is debatable; however, one of the key catalysts in this occurrence is "Coincheck" - a Japanese cryptocurrency exchange that was hacked. At that time, it was the largest exchange in Japan, with hundreds of millions of dollars in assets and holdings.
When the hack occurred, the criminals managed to steal $530 million worth of ‘NEM tokens’, creating a shockwave reaction throughout the whole crypto market, in turn causing a decrease in the price of Bitcoin.
Although there is no particularly direct connection between BTC and the stolen currency, the general distrust after this occurrence spilled onto Bitcoin and the crypto market in general.
Another blow came after the juggernauts of the internet, namely Facebook, Twitter, and Google, had banned any ads of initial coin offerings, further impacting the ripple effect throughout the cryptocurrency markets.
It is worth noting that rumors centered around South Korea had a play in this bear market, too. There were talks that a nationwide ban on all cryptocurrency trading is imminent in the aforementioned country, which created a further decrease in the monetary worth of Bitcoin.

The Fall of Stablecoin

This occurrence has contributed to the current bear market that we are in right now. It is the depeg and collapse of a stablecoin called TerraUSD, resulting in capital losses worth $45 billion in just a single week.
To make things a bit more clear, we should explain what a stablecoin is. Basically, it is a crypto coin that is tied to a certain other currency by its price. That is, for example, if a stablecoin X is tied to the U.S. dollar, it means that its price will remain the same - $1. The tie is called a peg.
TerraUSD was a stablecoin that was tied to the U.S. dollar. It was an algorithmic stablecoin, meaning that complex algorithms under the hood are working to maintain that the price remains stable (pegged) to the price of USD. This was done by using another coin by the same company, called LUNA.
Since those two currencies were tied to ensure stability, a not particularly technical and easy-to-understand explanation would be that each purchase of TerraUSD would burn a certain amount of LUNA and vice versa.
Back in May 2022, a tragedy occurred, and TerraUSD (UST) was depegged. It means that it could no longer maintain a steady price that is the same as the United States Dollar. The price of UST fell to just a mere $0.10 (whereas it was supposed to stay at $1), and the price of LUNA became pretty much worthless, even though it was worth roughly $120 previously.
To better understand the scope of this, it is worth noting that LUNA, at the time, was one of the top currencies in the crypto market.
This once again created a ripple throughout the whole crypto market, causing a decrease in the prices of nearly every cryptocurrency. The trust in crypto had fallen again, causing a bit of panic among regular investors, thus giving birth to the current bear market that we are in.

Possibilities for Investments

In short
Believe in the largest currencies that have survived many crashes, do not expect large profits, and play it safe. Turn on the TV or open up a newspaper — follow the news; the media has a lot of influence, and do some quality research on history.
Due to the nature of such markets, previous periods of bullish coins can signify an upcoming time of a bear market. Although most accept it as a negative thing, it also opens up a chance for investment.
The key tip if you intend to invest during the crypto bear market phase is to still go for the big players, such as Bitcoin or Ethereum. These two currencies, according to data, are the ones that control roughly 60% of the crypto market overall.
As previous times show, the cycle of a bull market and a bear market is constantly spinning, but these two currencies, despite the drops in their prices, remain active and incredibly popular. All signs (and, frankly, simple logic) point to the fact that these currencies will not disappear or fail totally, as some other currencies do during the bear market period. Hence, playing it safe with the big players is a great way to minimize the risk of having large losses.
If you make an investment in BTC or ETH during the value drop, and the value rises – good for you. If the price drops further, the incurring losses would not be as large with these currencies. Take LUNA, for example; investors in it lost everything, and the currency is almost worthless now. What about BTC? It is still there, despite being at its lowest point.
Another important thing is to focus on small profits and not expect anything too big. Even when investing in cryptocurrencies that will probably, never fail, bigger investments may cause a lot of financial strain. Therefore, it would be wise to spread your portfolio and make smaller investments.
Needless to say, the profits from them will be small, but they will minimize the risk of incurring large capital losses.
The third one is rather simple: watch the news. History shows that ever since cryptocurrencies went mainstream, news outlets, digital or traditional, have the power to influence the market.
During the few crashes of Bitcoin some time ago, some headlines (such as The New York Times “Cryptocurrencies Melt Down in a ‘Perfect Storm’ of Fear and Panic”) with little to no previous analysis had started to paint a picture of Bitcoin somehow getting back on the bull side of things.
Then the voice changed, and further panic was caused, driving down the values even further. Since this effect is very clear, following news stories could indicate whether or not further drops will happen or if there is a possibility for the values to bounce back.
Also, it is worth researching the past, where the currencies and bear markets begin, search for information not only about crypto but about asset management and investments in general. Although this money is virtual, it is still money, and it corresponds with the basic ideas of economics. Look at it as a global thing!

When Will It End?

Knowing the exact date on when this bear market will end is impossible. Despite sharing common traits with the "usual economy," the world of cryptocurrencies is unpredictable. There may be periods of peace followed by absolute crashes.
We are currently in a crypto bear market phase, and recent developments do not show any signs of improvement. The last occurrence, the closure of FTX, increases the length of the bear market, and it is not much that anyone can do about it or measure it.
Regardless, you should not be waiting for it to end. The core idea is to make your investments smart, versatile, and not based on timing or strange trends. The times are tougher now, yet, as written in this article, it is worth making investments anyways.
Some may lose interest in "digital money" during this period, but that would be a mistake. Profits are indeed smaller, but they are still profits. Especially when no investment is actually needed, as using JumpTask will give you crypto for free. This does not mean that the market won’t affect you, however.

Oskar Kallas
Oskar Kallas
Freelance Copywriter
Crypto genius explains blockchain intricacies, but behind the scenes, he's a quiet artist drawing cool things on his computer and playing the guitar in his free time.
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