Bear markets are periods of decline in securities, commodities, and the overall market. They are often associated with declines of 20% or more over a sustained period of time—typically two months or more. Bears may be contrasted with bull markets during which securities rise on strong company earnings or other positive news such as when interest rates drop significantly.
A bear market is a market in which the price of a security falls considerably below its purchase price. Bear markets are usually associated with significant inflation, deflation, or some combination of both. The periods during which countries have been in a recession tend to be more volatile than normal forever
A few key points
- There have been multiple bear markets in the crypto industry.
- In his long career in the crypto industry, Ryan Selkis has seen his fair share of crypto winters.
- Cryptocurrencies are available at discounted prices for investors.
Cryptocurrencies are down, which is good for investors
The bear market is a part of investing, especially in crypto. Since the Great Recession, there have been several periods when cryptocurrencies have experienced bear markets, even though the stock market was on a bull run for most of last year.
The cryptocurrency market class often falls by more than 60% during a crypto winter. During the last crypto winter of 2018, cryptocurrencies lost over 80% of their value.
Despite this extreme drop, the market recovered over the next three years and rose to new highs in 2021. In 2018, the cryptocurrency market cap increased by more than 2,500% to just under $3 billion.
Another similar situation might occur in the future, according to one crypto CEO. First, a few things need to happen.
Crypto Bear Market: Experienced it all
When cryptocurrency was in its infancy, Ryan Selkis founded Messari, a cryptocurrency research and data analysis company. By creating an intuitive and easy-to-use platform for users to explore cryptocurrency charts and trends, the CEO has become a prominent figure in the industry.
A veteran in the crypto market, Selkis has been through his fair share of bear markets and crypto winters. As with others, he believes this one came after a period of rapid growth — too much growth that happened too fast.
To spur the next bull market, Selkis believes a bit of turbulence in the market is healthy and necessary. It is inevitable that companies and blockchains that struggle to provide true utility will go out of business during bear markets. If blockchains want to remain competitive, they need to either strategize anew or further develop their ultimate visions.
A crypto winter helps “wash away all the dead wood” and make room for new competitors, according to Selkis. “Bear markets are good for getting the right people in the room to help lead another wave of innovation and growth,” he said.
In the event that the current crypto winter is similar to those of the past, investors should prepare for a few things.
What we can learn from this experience
To begin with, not all cryptocurrencies will survive the next bull market, if there is one. From the top 10 cryptocurrencies by market cap in June 2018, arguably the middle of the last crypto winter, only four remain.
As a result of succession, blockchains that fail to evolve and provide necessary utility are eliminated. It’s best to hold long-term cryptocurrencies, such as Bitcoin (BTC 0.27%) or Ethereum (ETH 1.62%), which are built for the long haul, have a proven track record, and aren’t part of a trend.
Additionally, if past bear markets have taught us anything, recovery takes time. From December 2018’s dismal low, it took nearly three years for the cryptocurrency market to peak. Though we haven’t even entered the current crypto winter, it shouldn’t be a cause for concern.
Investors should instead use this time to increase their positions and remain consistent with their allocations. Bull markets are likely to return in the future if the past is any indication. There is no way to account for everything with certainty, of course. Despite this, blockchains and cryptocurrencies are permeating business models and people’s daily lives in a growing way.
Investing in specific cryptocurrencies that promote innovation may be of immense value if the market recovers if the technology continues to evolve. Consistently keep the big picture in mind. In order to position yourself for success should this crypto winter thaw, you should prioritize investments in blockchains that provide true utility.
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