It is virtually impossible to predict the bottom of any cryptocurrency investment, let alone a bitcoin bear market. But looking at the history of the king of cryptocurrency investment can help us get an idea of whether it will fall lower than the 74% it has already fallen from its peak to evaluate what to do next. Let's take a look.
What exactly is a bear market in cryptocurrency investing?
In a stock index, a bear market is typically defined as a 20% decline from a recent high. But that definition falls by the wayside with bitcoin, in fact, with any cryptocurrency investment, since 20% drops are a piece of cake. We know that investing in cryptocurrencies is very volatile. After all, assets with smaller market values need much less selling pressure to drive the price down 20%. Bitcoin It currently has a market value of about $400.000 billion, which is a drop in the ocean compared to the $40 trillion market capitalization of the S&P 500.
Meme comparing the tolerance to falls of stock investment traders vs. those who invest in cryptocurrencies. Source: Earn2Trade
This is how we define a bear market in cryptocurrency investing for this analysis: a prolonged downtrend in price that lasts at least six months (26 weeks) and ends with the investment in cryptocurrencies down more than 60% since its beginning. Three of these have happened in the last decade, and this graph shows you each of them:
Previous bear markets that have happened in cryptocurrency investment with the aforementioned metrics. Source: Tradingview
- The first bear market was the most severe of the three, with an 87% drop in the price of bitcoin lasting 59 weeks from top to bottom. A period of low volatility followed, in which bitcoin remained in a tight price range for another 40 weeks, until its next big rally.
- The second bear market was quite similar: an 84% drop that lasted 52 weeks. But in this case, it only took another 16 weeks for bitcoin to rally. Still, it wasn't exactly a V-shaped recovery.
- The third bear market, on the other hand, was short and sharp, with a 72% drop that lasted 37 weeks in total. This one was different: Most of the decline occurred in March 2020, when the Covid-19 panic shook the markets.
However, in the case of bitcoin, the losses did not last long. As governments responded to the pandemic crisis with record stimulus packages, investors returned to the markets, and bitcoin and cryptocurrency investment rebounded strongly.
How is this bear market so far in cryptocurrency investing?
The chart below shows what has happened to bitcoin since it hit a high of $69.000 in November of last year. A couple of weeks ago it hit a low of $17.700, a drop of 74% in 31 weeks.
Current bear market in which cryptocurrency investment is located. Source: Tradingview
And if that $17.700 level were the bottom, that would make the current bear market milder than bear markets 1 and 2 in terms of price declines, and shorter than all three in terms of time taken to reach the bottom. minimum. Except, that… might not be the bottom line. Investment in cryptocurrencies could continue to fall. In other words, things are bad, but they could still get worse by historical standards. If the current bear market turns out to be as bad as Bear Market 1, for example, an 87% decline would put the price of bitcoin around $9.000. And bitcoin would still have another 26 weeks to get there. And if it turns out to be as bad as bear market 2, bitcoin would hit about $11.000 in 19 weeks.
Are there any investment opportunities in cryptocurrencies?
Bear markets may seem like a dark cloud, but there could be two silver linings here.
- First, with that 74% drop, we have likely already seen most of bitcoin's decline, if history is anything to go by.
- Second, let's remember that after two of the last three bear markets, cryptocurrency investing spent some time (40 weeks in one case) simply lateralizing into a lower price range.
If that cycle repeats itself, we will have more time to lower our dollar cost average price to potentially attractive prices. Historically, that has been a winning strategy in cryptocurrency investing.