Bybit Learn
Bybit Learn
May 23, 2022

What Are Crypto Bear Markets: 5 Handy Crypto Winter Tips

Although crypto bear markets are bound to happen, they’re not typically a sure sign of doom. What is a crypto bear market? How long do crypto bear markets last? These are some common questions traders or investors are asking today. In this article, readers will learn what crypto bear markets are, how to identify a bear run in crypto, and how long it may last. Readers will learn what distinguishes crypto bear markets from crypto winter periods. Additionally, this article will provide key information for surviving a bear run in crypto markets.

What Is a Crypto Bear Market?

A crypto bear market starts when a crypto asset trades less than its previous high amount by 20% or more and remains lower for some time. Usually, the drop comes with much pessimism about upcoming short-term performance. 

While a 20% decrease is a beginning point for a bear market, it’s not always in and of itself a sure benchmark to characterize one. Crypto prices are known for being volatile almost all the time. A 20% dip could simply happen on a bad weekday. However, a bear market is not the same as a healthy correction, which may also be called a retracement. Although a correction can range up to 20%, it’s usually closer to a 10% drop from its recent high. Corrections often last a few months. Short market corrections happen more often than bear markets. Also, corrections may happen to a particular asset or index, and bear markets have a broader effect range. Another key difference is in how long the decline lasts. While correction-related drops recover quickly in a matter of months, crypto bear markets can last for years. When lows are actively dropping, it’s still a bear market. As the drops taper and no longer move significantly, it’s called crypto winter. “Crypto winter” is an appropriate term, since the market is essentially frozen during such a time. There was a notable crypto winter period in 2018, and there was another a few years earlier. These crypto winter periods will be covered in greater detail in the section below about the length of crypto bear markets.

How to Identify Crypto Bear Markets

Many investors forgo buying during a bear run in crypto markets. The previous section outlined the basics of bear runs in crypto. However, learning more specific details about their key points can help investors discern whether they’re entering a crypto bear market, a crypto winter period or a correction. These are the main features of crypto bear markets to analyze.

Extreme Fear and Pessimism

Fear and pessimism reign in crypto bear markets. These sentiments are lengthier and more pronounced than they are in any periods that lead to panic selling. To measure market sentiment, there’s a Crypto Fear and Greed Index with scores that range from single numbers up to 100. Lower scores represent greater fear. Scores below 49 are on the more fearful end, and scores that range between 50 and 100 tend to be on the more optimistic end.

Low Trading Volume

Less activity is often a product of extreme fear and pessimism in crypto bear markets. During a bear run in crypto, trading typically decreases significantly as investor confidence evaporates. However, some may still try to sell assets, simply to prevent additional losses. When trading volume remains low, appearing more like a flat line with few minor changes, it signifies a crypto winter period. Because of the fear of wash trading potentially taking place on some exchanges and falsely inflating trading volume, more investors today are looking at decentralized exchanges (DEXs) for reliable indicators. In decentralized exchanges, it’s more difficult to falsely inflate trading volume.

Lack of Investor Confidence

When investors lack confidence, they trade less. A bear run in crypto comes with low confidence in multiple currencies. For instance, in May of 2022, lack of investor confidence spread throughout the entire crypto world after Terra’s LUNA and TerraUSD stablecoin imploded, despite its being a large-cap project. Stablecoins are supposed to stay liquid while holding value to make trades possible with other cryptocurrencies. However, Terra dropped sharply, losing upward of $5 billion overnight in market value. The destruction of Luna's stablecoin showed investors that stablecoins can still produce the same crypto risks without any corresponding benefits.

Unfavorable Macroeconomic Conditions

Since economic stability affects confidence, and because availability of money affects trading volume, unfavorable macroeconomic conditions can lead to a bear run in crypto markets. Traditionally, crypto bear markets accompany the combination of inverted curve yields, rising inflation and rising interest rates. Longer periods of these unfavorable macroeconomic conditions can turn crypto bear markets into crypto winters.

Increased Interventions from Regulators

Entering the crypto market comes with complex regulatory concerns. The regulatory world is in continual flux. Startups entering the market usually consult with attorneys to better understand the specific regulatory areas that affect them. Changing regulations, with other factors discussed in the previous sections shifting at the same time, can contribute to a bear run in crypto markets. Additionally, in the past, talks of stricter government regulations of cryptocurrencies have led to downward trends as fears grow.

Unhealthful Leverage Levels

Leveraging means using borrowed capital to invest. There is a ratio to represent the leverage amount, which is the multiplier a person can borrow in relation to account balance. Traders use leverage to boost potential profits and position size, as well as to improve capital liquidity. During the start of a bear run in crypto markets, leverage ratios may be large high, leading to greater market volatility and the potential for significantly larger losses.

Death Cross

A death cross is a technical bear market indicator which appears as a chart pattern showing a reversal of upward price trends. The death cross occurs for an asset when its 50-day moving average crosses the 200-day moving average. When this happens, there’s a higher potential for a mass sell-off. The death cross predates crypto, and has proven a reliable indicator in several notable instances. For example, in 1929, 1938 and 1974, the death cross signaled the arrival of bear markets.

How Long Do Crypto Bear Markets Last?

As noted earlier, crypto bear markets have lengthier periods than corrections do. How long do crypto bear markets last today? Keep in mind that crypto is relatively new, which means that there are not as many benchmarks and historical data to use. How long do crypto bear markets last on average, from past data?

One of the earliest crypto bear markets took place from January to July of 2012 A subsequent recovery period of less than a month gave way to another bear market that lasted until December. Three key precipitating events included hackers compromising the Mt. Gox exchange to steal millions of dollars in Bitcoin; lawsuits following the hacks; and a Ponzi scheme which stole hundreds of thousands of bitcoins from investors. At that time, there was a 93% dump. Bitcoin recovered after it gained more popularity with investors and became more widely known in the mainstream media.

Additional Bear Markets

There was another bear market for 415 days between 2013 and 2015, when the Mt. Gox exchange collapsed and Silk Road was shut down by the government. This period became a crypto winter, with Bitcoin dropping about 85%. Since investors knew from the previous bear market that Bitcoin would likely come back strong, the market eventually recovered. Some highly innovative tech was developed during this bear market period. Ethereum entered the market in 2016, and made cryptocurrency investing more popular again. Bitcoin skyrocketed, from under $1,000 to over $19,000 in 2017.

A key cause of the most recent crypto bear market of 2018 were the rumors that the SEC would visit the founders of startups funded by initial coin offerings (ICOs). At that time, most people only bought Bitcoin with regular currency. Investors used their dollars to buy Bitcoin, obtained Ether (ETH) with them, and used that to buy ICOs. Prices for everything crypto shot up, and ICO demand grew. Then, when it dried up, the entire market followed, leading to a crypto winter. Today, companies are more prepared. In addition, there are more operational companies in the market now, and more factors to consider. Bitcoin surged in December 2020 as investors started acquiring it to potentially deal with inflation arising from the pandemic. Tech innovations that made cryptocurrencies more usable or accessible also helped in shifting toward a bull run in 2021.

In the future, investors can also consider multiple crypto expert predictions. How long do crypto bear markets last according to expert predictions? The answers vary depending on sources. However, considering factors in the previous sections, along with different expert predictions, can help investors develop a more realistic idea of how long a bear market or a crypto winter may last. Some experts say that bull market periods often start after there are crypto and equities liquidation spikes in financial markets.

What to Do in Crypto Bear Markets

There are several steps that investors can take to survive crypto bear markets and potentially make money. Whether or not the period turns into a lengthy crypto winter, investors can follow these strategies to better manage their overall risk and portfolio.

Dollar-Cost Averaging Into Projects with Strong Fundamentals

In dollar-cost averaging (DCA), investors buy assets in increments over a period of time. The approach helps address the effects of price changes due to volatility by averaging out the price. While this strategy helps connect investors to projects that are fundamentally sound over time, it can also help to wait until a consolidation period starts. DCA investors should focus on projects that have engaged communities, active development and realistic road maps that show where they’re headed in the future.

Trade with Greater Discipline

Many people today are short-term traders. Raising stop-loss levels can help secure more profits for trades when they run at optimal prices. Also, in a bear run crypto market, it’s important not to aim for life-changing profit amounts before taking them. Taking modest profits periodically is better. Although there may be fewer large gains, there will still be profits. Relying only on speculative price increases isn’t wise, since they’re often unsustainable.

Learn How to Short Crypto

Shorting crypto means selling it at a higher price, with the goal of buying it at a lower one later. The goal is to buy when the price is expected to fall. As a way to make money from a cryptocurrency's decline, shorting may sometimes be a favorable solution — since the likelihood of losses is about equal to the likelihood of gains. If there is a period of crypto winter, be cautious when figuring out how to short crypto markets. With shorting, correct timing is imperative. Spend some time learning more in-depth shorting tactics, and how to tell when it’s helpful or potentially detrimental.

Diversify Your Crypto Portfolio

Financial advisors recommend diversifying a portfolio during bear markets to ensure that not all investments are in crypto. You’re less likely to experience a major disaster with a diversified portfolio if one asset performs poorly. However, crypto investors can also diversify their crypto portfolios by looking to invest in new projects while also focusing on coins with a good history. It’s effective to look at crypto projects which are still in their infancy. Newer projects include DAOs in which anyone can fully participate in the construction of the project and share in its profits. Exercising due diligence and carefully researching projects first are both essential to strategizing in crypto bear markets.

Keep Emotions in Check

Crypto bear markets create emotional roller coasters for many investors. With continual changes, it’s easy to start making potentially harmful emotion-driven decisions. When a bear market leads to a crypto winter, emotions can be especially unsteady for investors. Fear and greed contribute to poor decision-making, which is why investors must be conscientious at all times. By combining sound DCA and diversification strategies, traders can help limit emotion-based decisions that can hurt them.

Consider Low-Risk Strategies Like Staking

During a bear run in crypto, staking is an easy-to-use strategy that boosts long-term portfolio value. Also, staking helps reduce the tendency to obsess on a daily basis over changing prices. When investors obsess over fluctuations, they face a greater risk emotionally influenced decision-making. Staking these best staking coins can help you earn extra income during crypto bear markets, while investors are waiting for them to shift in sentiment. Many Layer 1 protocols allow staking of native tokens on their networks for yields. For better outcomes, develop a staking strategy after selecting projects that are fundamentally sound (and following the previous steps in this section).

Need some recommendations when it comes to low-risk strategies? Give Dual Asset a shot so you can take of small price movements in the crypto market. Alternatively, you can also check out Bybit Savings, where you can stake coins like BTC and USDC and earn up to 5.50% APY.

The Bottom Line

Despite market downturns, cryptocurrencies are still advancing with impressive speed. There is job growth in the blockchain sector, and many new projects are emerging every month. Due to volatility and other factors, crypto winter periods and bear markets will still occur in the future. The keys to surviving crypto bear markets are patience, positivity and a sound survival strategy that incorporates the tips in this blog.

Curious about the overall strategy you should approach this crypto bear market with? Check out our Ultimate Bear Market Trading Guide for more details.