What is a Crypto Bear Market?
The crypto market is considered more volatile than the traditional markets, which means that price decreases in a bear market can be more significant than you would see in traditional financial markets.
A crypto bear market occurs when crypto asset prices across the market fall 20% or more from recent highs, and there is general negative market sentiment. In a this market, inexperienced investors tend to panic sell their assets to avoid further losses, which creates a snowball effect on prices. For less stable assets, prolonged price dips can decrease asset values by more than 85%. In a bear market, prices are generally trending downwards.
A “crypto winter” often follows a bear market. Crypto winter is a market condition where the prices remain low and stagnant for an extended period. For instance, the crypto winter 2022 witnessed a drastic drop and $2 trillion was wiped out from the total market cap of cryptocurrencies.
Characteristics of a bear market include:
- Continuous price falls over a long period.
- The market sentiment of fear and a general lack of confidence is evident in social media platforms and mainstream media.
- Negative views and lack of trust.
- Demand is less than supply.
How Long Do Crypto Bear Markets Last?
It may last for a couple of weeks, months, or even years. Several factors such as increasing inflation, rising interest rates, and economic conditions may impact the length of bearish trend.
There are typically four phases of a crypto bear market depending on the psychology and contrasting feelings of participants:
- Preliminary phase – In this phase, the market sentiment is still bullish and there is general optimism among traders. Asset prices have reached their peak before the bearish trends begin.
- Early-stage phase – This stage marks the initial onset of the bear market. There are some downsides as well as occasional recoveries. Traders still have high hopes and tend to ignore the indications. Over time, the recoveries can no longer cover the losses.
- Full-fledged phase – The prices start to fall steeply and investors start to panic. Some investors try to sell off their assets to cover the losses. The recoveries are insignificant and there is general negative sentiment in the market.
- Late stage: The prices reach the bottom and start to level off. By this time, the sellers have left the market and new buyers try to enter the market wishing to get the assets at reasonable prices.