Over 380 days have passed since the current bear market started. It is longer than the 365 days of the 2018 -2019 bear market but not as long as the 2013–2015 crisis, which lasted 415 days.
The downward spiral began in 2021 but became dire when the cryptocurrency market capitalization fell below $2 trillion for the first time in January 2022. Since then, Bitcoin’s price has dropped by more than 70% from its all-time high of $69,044.77, which was recorded on November 10, 2021. Other prominent cryptocurrencies like Ether and Solana have also had 90% declines in value.
There’s no telling if cryptocurrencies like Bitcoin and Ethereum will rise from this bear market stronger than before. However, before determining the future of this bearish trend, you should fully understand the current market. This article explores the bear market and helps you decide whether or not it’s a good time to invest.
What Constitutes a Bear Market?
Bear markets are periods during which the value of cryptocurrencies drops by 20% or more. A good example is the cryptocurrency crisis of December 2017, when Bitcoin’s price plummeted from $20,000 to $3,200 within a few days.
Once prices have fallen below 20%, some investors begin to sell their assets with the aim of cushioning losses. However, this herd behavior causes the price to drop even further.
There are multiple instances of a crypto bear market. The first was in 2011 when Bitcoin’s value fell from $32 to $0.01 within a few days. When Bitcoin picked up again, it reached $1,000 in November 2013, but in January 2015, it hit a low of $170.
Unlike stocks, it’s harder to pinpoint when a crypto bear market is about to hit. That’s because a lot of things could lead to this downward spiral, some of which are:
- Investors holding off their assets due to uncertainty.
- Negative comments about the crypto market from a well-known personality.
- An asset’s foretold future price is much lower than its current value.
- Collapse of a very significant cryptocurrency project like the crypto exchange FTX.
- Intervention of regulatory bodies that could affect mining operations.
How has the market reacted to the 2022 crypto recession
A bear market damages investors’ perceptions of the market, leading some of them to make drastic and sometimes non-profitable decisions. However, there are a few strategies that investors have employed to survive the bearish trend. These include:
Staking
Like gambling with crypto at NonGamstopBetSites, there is an increased use of cryptocurrency to place stakes on some platforms. Cardano (ADA), Polkadot (DOT), and Solano (SOL) are some of the blockchains that let investors stake their holdings. To stake is depositing cryptocurrency in a decentralized ledger to validate transactions in exchange for incentives.
The Proof of Stake (PoS) agreement uses the same Proof of Work (PoW) mechanism to validate transactions on the network. Every time a block on the blockchain is verified, the holder gets a reward.
With staking, investors generate passive income from their cryptocurrency holdings, which they can use to cushion their losses during a bearish market. Ultimately, they’ll avoid panic selling because they’ve locked up your cryptocurrency. However, locking up a cryptocurrency removes its liquidity.
Short-selling
Crypto shorting is a strategy set in motion before the market takes a nosedive. For this, you borrow a lot of virtual currencies and sell them to an investor for fiat money while the market still has value. The plan is to purchase crypto when its value is lower, and then you repay the borrowed crypto plus interest.
You profit even when the market has taken a bad turn. However, this strategy requires in-depth research to determine when the bear market will start, so you can know the best time to borrow.
Dollar Cost Averaging
Dollar-cost averaging (DCA) is the practice of purchasing an asset at regular intervals for a specified dollar amount (for example, $100 each week). Instead of making massive or irregular crypto purchases, it entails making smaller, equal purchases on a regular basis. Experts have shown that DCA can produce greater benefits than market timing over the long term.
Is it worth it to join the market now?
A bear market is never a good time for crypto holders. However, there are advantages to this situation. During this time, market leaders like Bitcoin and Ethereum experienced a massive drop in price. This gives you an opportunity to join the few people that own Bitcoin and Ethereum by purchasing these currencies.
When there’s a bullish trend, your holdings gain more value, meaning that you make profits from your purchase. Besides Ethereum and Bitcoin, other altcoins are good investment choices. However, these might not gain value as fast as well-known virtual currencies would.
On the flip side, if you’re already a holder, you’ll experience severe losses in a bear market. During this time, you’ll be urged to sell off your holdings during this time as you cannot tell if the price will dip further. Investing in the market at that point will seem like a shrewd thing to consider. Nevertheless, if you choose to invest rather than sell, choose your investments carefully.
What do the experts predict for the 2023 crypto market?
While there’s been a severe drop in the value of virtual assets in 2022, many predict Bitcoin to top $21.3k in 2023. BTC was recently trading at over $21,190, up more than 1.6% in 24 hours despite the usual light trade seen during holidays. Ether recently came close to $1,600, up about 1.5%. The market value of the second-largest cryptocurrency has increased by more than 32% this year.
What this means is that the bear market seems to be coming to an end. Thankfully, you already have better knowledge of the 2022 crypto bearish trend and how investors reacted. You have also learned the advantages and disadvantages of entering the market when there’s a downward trend. This can help you make better investment decisions during bear markets.Â
