What is a Crypto Bear Market?


5 mins read August 29, 2022

The crypto market is a decentralised platform where individuals can buy, sell, or exchange cryptocurrencies. The market is full of many reactions and is essentially volatile. 

Notable among them, and usually the most painful to many, is the decline in asset prices, often referred to as a "bear market." 

A prolonged period of substantial decline or reduction of prices in the crypto market is called a "Crypto Bear Market."

In the crypto market, many investors buy digital currencies like bitcoin and other cryptocurrencies to see them gain value or increase in price so they can make a profit. 

On the contrary, when prices decrease, leading to a depreciation, crypto traders and investors may irrationally make bad trading decisions, such as panic selling. 

Let's take a further look so we have a clearer understanding of the "crypto bear market" and how we can navigate the market better and make better trading decisions.

What is a Crypto Bear Market?

While a sustainable increase in the crypto market over a longer period is known as the "crypto bull market", the decrease in the crypto market over a longer period is known as the "crypto bear market."

A crypto bear market occurs when there is about a 20% decline in the price of a cryptocurrency over a longer period. It is a considerable decline or decrease over a sustainable period.

It is commonly caused by several factors, including pessimistic or discouraged investors. Widespread investor skepticism about the likelihood of falling market prices characterizes the bearish trend.

Discouraged investors who believe that prices will continue falling are referred to as the “bears.” Whether you are a new trader or not, knowing how to effectively profit from a bear market is key to your long-term success.

Signs of a Crypto Bear Market

  • The majority of investors are selling.
  • When supply becomes greater than demand.
  • Market confidence is at a low.
  • Prices are falling.
  • 20% market drop in price over a short period;
  • Capitulation Period.
  • Negative talk about cryptocurrency
  • Falling GDP.

Crypto Bear Market Indicators

A sharp decline or downward price movement can begin a bear market, where several investors believe prices will keep falling, leading to a downward spiral as they quickly sell off to prevent further losses.

There are some reasonable indicators of a crypto bear market outlined thus:

  1. Government intervention or regulatory bodies;
  2. Reduction in trading volume;
  3. Negative sentiments from pessimistic investors

It's not easy to predict the end of a bear market as rebounding is usually a slow and unpredictable process that can be influenced by many external factors, such as :

  1. Economic growth;
  2. Positive investor psychology; 
  3. Daily news and events;

While a risky venture, investing during a bear market can be profitable as investors gradually gain confidence again and a new bull cycle sets in.

Causes of Crypto Bear Market

Crypto Bear Market can be caused by several factors, including:

  1. An Economic Recession ;
  2. High rate of unemployment;
  3. Political instability; 
  4. Poor economic policy;
  5. Burst market bubbles;
  6. Natural disasters;
  7. Pandemics;
  8. War;
  9. combination of any or all of these things.

History of Crypto Bear Market

So far, there have been three significant periods in the history of the Crypto Bear Market in the past, and we will be looking at these periods briefly:

The crypto market experienced the first crypto bear market, which started on June 8th, 2011 with a sudden decrease in the price of bitcoin from $29 to less than $1 and over a 99% decline in price.

However, this price decrease was recovered in early 2013 and never went below the all-time high (ATH) price of $29, previously attained in 2011. Rather, it kept on increasing and restoring the confidence of investors.

Following the era after the first crypto bear market and an increase in prices once more, the second primary crypto bear market struck on December 4th 2014, from $1135 to $175 on January 14th 2016.

It looked like that would be the end of bitcoin with over 85% decline from the initial price; it came back in 2017 and never went below $1000 again. One could say that bitcoin has actually come to stay despite the sudden and long-term decline in price.

From December 16th 2018 to December 25th 2018, bitcoin prices sharply decreased from $19640 to $3185. However, bitcoin bounced back again and didn’t decline to $20,000 for s long time until the recent crypto market crash in the second quarter of 2022.

In summary, the crypto market is volatile, and even when there is a crypto bear market, you can be assured that it will recover and come out even stronger based on past experiences.

Things to do During a Crypto Bear Market

  1. Avoid Leveraging in Crypto during a Bear Market:

Do not use borrowed capital to make a trade to make a more significant profit during a crypto bear market.

  1. New investors are advised not to trade;

This is because while they hope to buy small and sell big, they do the opposite as their emotions get the better of them and leave them at a great loss.

  1. Make adequate research: Study crypto bear market history over the years and study signs for the beginning and end of a typical bear market, as earlier highlighted.
  2. Take a profit by selling off a percentage of your gain rather than losing out on everything while trying to avoid a rush sale.
  3. Conduct research on crypto projects and get involved in these projects with the knowledge gained from your study, rather than just investing your money without due diligence because of new or shiny tokens.
  4. Building lasting relationships in the crypto market is important, especially with experienced investors if you are new. It will help you prevent the chance of making double losses with increased efforts and wasted time.
  5. Having an alternative means of income or something else to do rather than depending on daily income from crypto trading is preferable.

This will help prevent panic selling or selling at a loss when you buy high just to meet daily financial needs. At least you could get a crypto job while investing as well.

  1. You can buy Crypto Dip using Dollar Cost Averaging (DCA)

Buying crypto dip is the practice of buying up a certain amount of cryptocurrency whenever there’s a significant bearish change in the crypto market. This gives the dip buyers a big profit when the price returns to its typically higher value.

Dollar Cost Averaging DCA is the act of splitting your reserve or extra funds into smaller parts and making several trades over time. It is usually safer to invest a smaller amount in different assets and see if it falls further or increases rather than trying to time the market.

  1. Using indicators, you can observe the best entry point on when to buy the dip.

Although they are not 100% guaranteed, they show a strong signal when it's safer to buy a dip using overbought and oversold indicators.

  1. Spread your investments into various crypto assets. 

Just like in DCA, this helps minimise the risk from further losses compared to investing in a single crypto asset.

Wrapping Up

To remain a long-term profitable crypto trader, you must learn how to survive a crypto bear market. Having reasonable control of your emotions and making effective trading decisions remains one of the most powerful secrets to maintaining a healthy portfolio. Since market volatility cannot be predicted or controlled, you must do well to keep yourself in check since you can

Disclaimer: This article is meant to provide general guidance and understanding of cryptocurrency and the Blockchain network. It’s not an exhaustive list and should not be taken as financial advice. Yellow Card Academy is not responsible for your investment decisions.

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