It is official. We are in the middle of a crypto bear market.
The cryptocurrency market has been annihilated this year, with many digital currencies plunging by double digits.
Indeed, the most notable declines have been in Bitcoin and Ethereum, which have plunged 51 percent and 54 percent, respectively. That said, nearly every crypto asset has hemorrhaged red ink this year.
What does this mean for peer-to-peer decentralized virtual currencies and protocols? Have the bears come to feast on crypto, or are the bulls staving off their demise?
Let’s get acquainted with the crypto bear market and see how we got here.
A bear market is technically defined as an asset tumbling 20 percent from its high. In addition, a bear market will possess a wide range of characteristics, including low confidence, pessimism, smaller volumes, and a lack of good news.
Not only does crypto meet the technical definition of a bear market, but it is witnessing these characteristics, too.
But while the upward trajectory of the overall crypto market has been a positive sign, it is still clear that the industry remains in a bear market. In fact, it has been in a bear market for all of 2022, plummeting after reaching a peak in November last year.
Some say this is sorely needed in cryptocurrency after two years of unsustainable and explosive growth. Others contend that the crypto winter has been too much for enthusiasts who put their life savings into Bitcoin, Ethereum, Dogecoin, and Shiba Inu and the plethora of crypto institutions offering as much as 20 percent interest on crypto savings.
Both can be true simultaneously: a correction is required, and investors who bought at or near the top have been wiped out.
Now, there are a few things that crypto investors need to know about a crypto bear market – or a bear invasion in the broader financial markets.
The first is that there will be the inevitable relief rallies that will occur throughout the bearish cycle. We have seen this many times, leaving many to think that the pain is over, and the euphoria will settle in again.
The second is that the crypto bear market began when the Federal Reserve tightened its monetary policy. By raising interest rates and trimming the roughly $9 trillion balance sheet, the U.S. central bank has been essentially winding down the era of cheap money. Near-zero interest rates seeped into the overall crypto sector for the last two years, elevating asset prices and spawning exceptional speculation. This created a domino effect in the industry: exchanges collapsed, investors panicked, and the so-called dumb money abandoned the arena.
Finally, like every other asset, crypto is cyclical. In 2020, tech was all the rage. In 2021, meme stocks dominated Wall Street. In the first half of 2022, commodities were in a supercycle. This year, investors are seeking shelter in utilities and the U.S. dollar. What will be the prevailing theme in 2023? Perhaps it will be tech and crypto again. The main point is that every asset class goes through its peaks and valleys, so it is inevitable that crypto will come out of this winter alive and become reborn once everything stabilizes and certainty reigns supreme again.
If you are a long-term crypto investor, this is a prime opportunity to get your foot in the door or add to your positions.
But what should you do?
The first step is to identify coins with long-term potential and staying power. Put simply, do your research, and listen to the experts on what digital tokens have the best upside.
Bitcoin and Ethereum, which account for approximately 60 percent of the market share, are logical choices. But there are other ones, too, that are enduring the chaos: Cardano, Uniswap, Avalanche, Litecoin, and Polkadot.
The second strategy is to dollar-cost average (DCA) your investments. This is one of the best investment tactics you can employ when trading in any type of market, stocks or commodities, bull or bear markets, and expansions or recessions. DCA means frequently buying at any price to avoid volatility, selloffs, and FOMO (fear of missing out). Preferably, you want to DCA down, which you can easily do in today’s crypto environment with prices at depressed levels.
Remember, this does not mean you need to bet the farm. Instead, you can take a more conservative approach and take advantage of the lower prices. The bear market will be here to stay a little while longer as the Federal Reserve will not be raising interest rates significantly anytime soon. Plus, a slow and steady approach to crypto investing is needed with inflation still elevated and recession fears seeping into the financial markets.
Let’s be honest: The cryptocurrency industry is not going anywhere. The $1.1 trillion sector has become too entrenched in the global economy. Wall Street is ostensibly going all in on blockchain, digital assets, and the various technological developments and innovations that spawned from the ground zero of Bitcoin.
It can be easy to feel dejected after the collapse in crypto prices, particularly if you bought coins heading into the peak. But while this should serve as a valuable lesson of never chasing a rally, it can also allow you to take a breather, study the market, learn from your mistakes, and gradually rebuild positions in viable cryptocurrencies rather than meme coins or joke coins.
So, grab your blanket because the crypto winter is not leaving. But be sure to also carry your sunglasses because sunny days are also on the horizon.