As we're passing through the winter season (both natural and financial), it makes sense that bull and bear markets keep popping up in our thoughts or our daily conversations. The market decline has been going on for some months now, affecting both crypto and traditional financial markets simultaneously.
Every industry is bracing itself in the face of the current bear market, including the play-to-earn crypto games we love so much. So, while we wait for better days to come, we should look back in time at some of the biggest, worst bear markets in history and discover how people recovered from each one.
Quick bear market recap
Let's take a moment to remember what a bear market means precisely. The terms bull and bear markets come from the stock market and describe the market performance over time. Bull markets reflect an extended period where investor confidence is high and prices are rising. On the contrary, a bear market represents a period of time when prices are low; the market is on a steep decline, and confidence is diminishing by the day.
However, although everyone dreads prolonged bear markets that can lead to economic recession, high unemployment, high inflation, and interest rates, it's crucial to know that they are an integral part of the market cycle, just as much as the bull market.
Bear periods give the crypto and stock market time to return to the mean and prepare for the next bull market run.
Read more about crypto bull and bear markets in our previous article on the subject.
The most important bear markets of the last century
Throughout the years, there have been many times when the stock market has gone downhill, with both the Dow Jones Industrial Average and the S&P 500 free-falling. With the emergence of blockchain technology and cryptocurrencies, the crypto bear market has become a thing in recent years.
Let's explore some of the most famous bear markets that have impacted the world economy in the last 100 years.
The Great Depression of 1929-1930
We'll start with the biggest bear market in history, none other than the Great Depression. It all began with the stock market crash of September 1929, which caused a bank run, triggering a massive chain reaction of institutions falling over. Investors started to panic selling, and more and more people pulled their money out of the banks.
The Great Depression lasted for more than ten years, with the unemployment rate reaching a staggering 25% at the peak of the depression. The S&P 500 stock market index also took a tremendous hit, dropping by 85%.
Between September 1929 and April 1942, there were 12 bear markets, granting the period leading up to World War II the title of the worst time in stock market history.
The Roosevelt Recession of 1937
The economy was still struggling to recover from the Great Depression when U.S. president Franklin D. Roosevelt started to adopt tighter fiscal and monetary policies in 1937. The president cut government spending while the Federal Reserve doubled bank reserve requirements. This led to a new recession just on the brink of World War II.
The S&P 500 dropped almost 55% between March 1937 and March 1938.
The Nixonomics of 1973 ( Stock Market Crash)
1973 was another bad year for the stock market. Stock prices lost half their value between 1973 and 1974 in a bear market that lasted 630 days.
The factors that led to bear market territory included oil prices exploding, inflation, rising interest rates, the Watergate scandal, and the unlinking between the U.S. dollar and gold. The S&P 500 would drop around 48% during this time.
The Black Monday of 1987
History books list Black Monday as the most violent correction of the Dow Jones Industrial Average. In one day in October 1987, the stock market lost 25% of its value.
The factors that fueled the one-day crash were the slowing economy, weak U.S. exports, and the emergence of computerized trading, which triggered automated sell orders when targets were hit.
The market didn't reach its bottom for another two months, and the value fell by an additional 11% during that time. For comparison, Black Monday was twice as severe (in terms of percentage) as the reddest day of the covid pandemic crisis in 2020.
The Dot-com Bubble of 2000
Everybody remembers the Dot-com Bust and the bear market that followed. Investor interest in technology stocks was at its peak in the years preceding the turn of the decade.
Anyone with a tech business could find enough investors to launch and go public, sometimes without the help of seasoned executives or well-developed business plans. The rise of these companies was short-lived. They burned through all their cash quickly and became bankrupt. When investors started selling off their remaining tech stocks in favor of safer alternatives, share value started to decline.
Many people found this successful until the internet-fueled Nasdaq's abrupt stop. The S&P 500 lost more than half its value, plummeting 49% over a span of 30 months beginning in 2000. The Nasdaq index fell by more than 75% as well.
The Great Recession of 2007
We're starting to get closer to home, so to speak, with several bear markets that are still ingrained in everyone's memory. Whether you were still a kid, in high school, or much older, you must remember the impact of 2007's great recession on all our lives.
In the decade before 2007, the U.S. housing market saw an unprecedented rise, house prices, and the economic activity around housing credits inflating tremendously. Mortgage lenders had extremely loose credit requirements, making investing in houses way above one's means easy. When the bubble began to burst in 2007, many people found themselves incapable of paying their mortgages.
Lehman Brothers was the fourth biggest investment bank in the world at the time. They underwrote over $80 billion in mortgage-backed securities, and when the housing market started to decline, Lehman Brothers collapsed, bringing a full bear market with it.
The S&P 500 fell 47% between October 2007 and March 2009, and the U.S. fell into an 18-month recession, much longer than the nine-month average length of bear markets.
The third Bitcoin bear market of 2017
It's time to include a crypto bear market in our list. In 2017, Bitcoin had managed to reach the $20,000 threshold before it started to decline and lose more than 60% of its value. The following year, the bear market process continued until December 2008, when Bitcoin bottomed at around $3200.
Many factors influenced the crypto winter, like the security issues on Coincheck that resulted in a $530 million hack, global crypto regulatory efforts, and the fact that Facebook and Google banned ICO and token sale ads in March and June of 2018.
The Covid-19 pandemic bear market of 2020
The last bear market, caused by the coronavirus outbreak, was the shortest stock bear market on record. Stocks experienced a significant drop over a period of 32 days beginning in March 2020, dropping close to 34%. However, since central banks worldwide turned to quantitative easing, the markets recovered in the next six months.
The end of this bear market was followed by a steep bull run that lasted until this year, when a new bear market cycle started, bringing us to the current recession.
The fifth Bitcoin bear market of 2022
And so we've reached the present-day crypto and stock bear markets that are coinciding for the first time in history.
The ongoing crypto bear market is mainly related to the crisis of algorithmic stablecoins, specifically the TerraUSD Classic (USTC) stablecoin. USTC, formerly a significant algorithmic stablecoin, lost its peg to the dollar in May. Given that USTC managed to rise to become the third-largest stablecoin before it crashed, the depegging of USTC caused a significant panic in the broader crypto markets.
With the collapse of Terra began the decline of the rest of the crypto market, caused by massive liquidations, panic selling, and general uncertainty.
Bitcoin fell below $20,000 for the first time since 2020 in June, which stoked market hysteria.
We'll end this article on a positive note by saying that whatever goes down must come back up again. Both crypto investors and stocks investors have seen their fair share of bear markets, and while it's certainly not fun when there's a massive drop in asset value, nothing lasts forever.
The length of a bear market is usually much shorter than a bull market, so investors will be able to return to profit sooner rather than later.
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