How long will the crypto bear market last? A Look at Previous Slowdowns
With the cryptocurrency market being in its fifth all-time bear market, which began in November last year, the prices of major tokens have fallen significantly from their all-time highs.
How long will the current bear market last is the question everyone is asking.
By analyzing historical data and merging observations from previous bad markets and recessions of the past 100 years, we attempt to provide an answer to this question.
How do the terms “bear market”, “recession” and “depression” differ?
We must first define these terms to understand what we are talking about.
When the price of stocks or cryptocurrencies drops by 20% or more and the decline continues for at least two months, it is considered a bear market.
Bear markets occur frequently. In the stock market, they usually occur every three to four years. The intervals between bear cycles in the crypto markets are shorter, at around 2 years.
A recession is generally defined as an economic slowdown lasting at least two consecutive quarters, measured by a reduction in gross domestic product (GDP).
They occur on average every 10 years.
It is crucial to realize that while crypto bear markets frequently overlap with financial markets, a recession affects more than just financial markets.
The whole economy slows down during a recession.
A recession of three years or more is considered a depression.
The American recession of the 1930s is an extremely unusual example of a depression.
Over the past century, several depressions have occurred in various countries around the world.
Current and historic economic downturns in the United States are illustrated in this chart.
It demonstrates how far the S&P 500 has fallen and how long each bear market has lasted over the past 90 years.
This chart does not include the 2000 bear market as it lasted over 600 days.
Compared to some historical precedents, the current bear cycle in US stock markets, which began in January 2022, can still be considered quite moderate.
When analyzing the crypto bear market, why consider the US stock market?
There are many parallels between the two financial markets.
Since stock markets have a much longer history, there is a lot to learn from them.
Cryptocurrencies and US stock markets have a strong connection.
Therefore, a rise or fall in the stock market is very likely to affect the crypto market as well.
In other words, anything that influences the S&P 500 is likely to have an effect on the crypto markets as well.
Based on the current data, we can draw the first conclusions:
Are we in a bear market?
Yes. For several months, cryptocurrency and stock markets have suffered huge losses.
Have we entered a recession?
Yes. The global economy has only gotten worse since the start of 2022 and has now seen two consecutive quarters of negative growth, which is critical.
And with the worst expected to come, the recession could continue to affect us well beyond 2023.
Are we in depression?
Not yet. This would require the current economic crisis to continue until 2024-2025.
What have we learned from previous crypto bear markets?
What else can we infer from historical data now that we are aware of our current economic situation?
A first apparent approach is to consider how long and how low previous crypto bear markets have waned.
Market downturn 2011-2012
Duration: 185 days + months of sideways market movement.
Bear market 2013-2015
Duration: 415 days plus months of sideways market movement.
Market gloom 2017-2018
Duration: 365 days plus months of lateral movement.
Bear market in 2019-2020
About 260 days.
Reduced by -62%
As we can see, the typical crypto bear market was down around 61% and lasted 306 days, with plenty of sideways moves in the months that followed.
But it might be different this time
As stated earlier, we are now entering a recession, and this is the first time that a crypto bear cycle and a recession have coincided.
What repercussions can this have?
S&P 500 bear markets are much shorter when they do not coincide with a recession than when they both occur at the same time.
Non-recessive bear cycles in US equity markets typically last only a few months and result in a decline of around 22%.
The rehabilitation process usually takes 11 months to reach the former peak.
However, markets lose value by an average of 30% during a recession.
The median time to rebound to the previous high once the low is established is 48 months.
Does all of this imply that the current crypto bear market could be more severe and prolonged than previous ones?
Without a doubt, it is possible.
Furthermore, a quick return to a more solid market outlook is unlikely given the broader macroeconomic circumstances.
Good news then?
Yes. Technical charts are showing some positivity.
The Relative Strength Index (RSI) for the month is at the same extremely low level as at the end of the bear markets of 2013-2015, 2017-2018 and 2019-2020.
This was a signal that the bottom was approaching previous bearish cycles.
It doesn’t look like this negative cycle will end anytime soon based on historical data.
We still have to prepare for several months of falling prices or, at the very least, fixed prices.
But we also know from history that the mood towards cryptos can change suddenly.
In any situation that arises, it is important to remain calm.
Contrary to popular belief, the final third of a bear market is where investors often suffer their worst losses.
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