As a famous character once said, "Winter is coming." Now, if we want to be truly accurate, the crypto winter has been here for a while now. Not only crypto assets have been in a bear market for the last few months, but also most financial markets are in the same situation.
Every asset class has been affected, from Bitcoin and all the altcoins to stocks and bonds.
While we wait for the bearish period to end and for the bull market to start again, there are a few things that we should keep in mind. If you're not sure what is the difference between the bull and bear crypto markets, refresh your memory with our dedicated article.
Bear markets are crucial
Although nobody likes the current bear market, you should know that bear markets are a normal part of the market cycles, just as much as bull markets.
Starting with 1932, the stock market has experienced down cycles every five years, more or less. If we look at the crypto market cycle, we will notice a similar pattern, with crypto winters happening approximately every three years and a half.
Even though bear markets are painful for everybody involved, they have a purpose. A falling market allows asset prices to revert to the mean, preparing the digital assets for the next bull cycle.
A crypto bear market is different than a stock one
There are significant differences between a crypto bear market and falling traditional markets.
For example, the stock market typically bottoms out after a 36% correction, whereas Bitcoin can drop as much as 86%. Some assets experience a sharp decline greater than the index, such as Microsoft, which experienced a 40% decline during the recent bear market.
Another significant distinction between stock and crypto winters is the duration of the bearish trend. Stock bear markets often last far less time than bull markets. Usually, bear markets are about 10 months long, while bull markets are 32-month long.
In the cryptocurrency market, a bear market lasts for prolonged periods of about 19 to 26 months, which is fairly similar to the typical length of a bull market.
Bear markets tend to begin extremely abruptly, but they consolidate at the lows for an extended period before starting a new run.
You can't predict a bear market
Most market participants will tell you that bear markets are hard to predict in advance. Of course, there will always be signs before a market reaches bear territory, but most people fail to see them.
Long-term investors use different technical indicators to assess a digital asset's future and the market price trend. Still, not everyone can be certain when crypto prices will drop drastically.
It makes no sense to constantly worry about a possible bear market while in a bull run.
During a bull market, you should focus your efforts on making money; during bear markets, you should create a risk management system. Experienced traders don't let fear drive them but make calculated decisions based on price action, the value and market capitalization of certain assets, and market demand.
Time is of the essence
Time is an essential element, whether we're talking about crypto bear markets or their stock counterparts. It's all about perspective. While your digital asset portfolio can turn stark red during a down cycle, waiting it out for a longer period will turn it green again during the next bull market.
According to the charts, keeping an investment for ten years results in a positive return 94% of the time, even though one in three-quarters of the S&P 500 can be negative.
Many traders resort to short selling during a bear market. As soon as the negative sentiment becomes clear and the value of more assets plummets, most investors start to sell out of fear.
However, holding Bitcoin for the long term increases your wealth, as usually, the cryptocurrency overcomes the previous high in the next bull run.
Stock and crypto bear markets might not coincide
This time, it's actually the first time in history when both the crypto and traditional markets have entered a down cycle simultaneously. If we look back to 2016-2017, for example, the crypto world entered the first phase of a bull market right around the same time the stock market was going downhill.
However, in the past few years, investors have noticed that the two markets have become correlated, sharing both recent highs and current lows.
Market sentiment denotes a bear market rock bottom
As hard as it is to foresee when bear markets might start, it's even harder to guess when the prices hit rock bottom. When investors and day traders are convinced of the crypto continued fall, that's usually when the market finds a bottom.
In such moments, crypto investors start trading at a loss, selling their assets as fast as possible because they've lost their faith.
On the contrary, this is the proper time to take a risk and invest before the price goes up again.
Many altcoins disappear during a bear market
We know this one will be hard to hear, especially if you are trading with many altcoins. So please bear with us (pun intended!) while we explain why only some of the altcoins in your portfolio might survive this crypto winter.
As the previous bull market showed us, many altcoins never reached new highs, having been shadowed by newer, more innovative crypto projects. Sometimes older coins don't have the power and the solid narrative for price increases after a down cycle.
However, there are always some exceptions to the rule, like the popular Ethereum token that, since its launch in 2015, has continued to rise and outperform most competitors.
If you survive the crypto market winter, you'll make a profit
We'd like to end our list of bear market facts on a positive note, so we'll tell you this: If you survive the down cycle without selling all your tokens for a meager price, you will make a profit again once the trend goes upward.
If we look at stocks, we'll see they lose 36% on average in a bear market. By contrast, stocks gain 114% on average during a bull market.
The secret is to keep your head straight and never panic-sell for a low price, no matter how bad things might seem.
As you can see, the devil is not as black as he is painted when it comes to the crypto market. We would all like to be in a perpetual bull market, but that's not possible.
The cryptocurrency world goes through these market cycles all the time, and experienced investors try to navigate the crypto winter by using different strategies, such as Dollar-cost averaging.
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