A crypto bear market is characterized by falling prices and a significant drop in cryptocurrency market capitalization. This means that a bear market has occurred when the total value of all cryptocurrencies falls below $200 billion. Bear markets can last for days or months but always end with a bull run.
This is where the crypto market’s relative youth makes things challenging. Economists, analysts, and traders in the stock market have decades, if not centuries, of data to comb through to uncover the trends and triggers that occurred shortly before a bear market transformed into a bull market and vice versa. In contrast, Bitcoin was only first introduced in 2009.
What Are the Signs of a Bear Market in Cryptocurrency?
Here are some warning signs that indicate we are entering another crypto bear market.
- A fall in crypto prices.
- A decrease in trading volume and activity
- A decrease in ICOs (Initial Coin Offerings)
- A decrease in new blockchain startups
What are the effects of a crypto bear market?
A crypto bear market results in the occurrence of these three major situations.
- Bearish sentiment: A bear market is characterized by widespread pessimism towards cryptocurrencies and the blockchain industry as a whole. During these periods, investors are more likely to sell their tokens at any price to avoid further losses. This creates panic selling, further exacerbating the bearish trend and damaging investors’ confidence.
- Declining volume: The volume of trades also decreases during bear markets because fewer people are willing to buy and sell tokens due to high volatility and uncertainty about future price movements. This results in lower trading volumes across all exchanges, which leads to lower liquidity and higher slippage on trades (when your order is executed at an unfavorable price).
- Lower daily transaction volumes: As mentioned above, fewer people are willing to trade during bear markets because they fear further losses or do not want to take any risk until prices stabilize again.
How Long Do Bear Markets Last in Crypto?
Bear markets are periods where the price of an asset falls significantly from its previous high. This is commonly applied to stocks but can also apply to other assets like commodities or bonds. We call these periods “bear markets” in crypto because they are usually accompanied by negative news and poor sentiment towards crypto assets.
However, there are many types of bear markets: short-term (weeks or months), intermediate (1-2 years), and long-term (5+ years). The cryptocurrency market has been in a bear market since April, but it has been a roller coaster ride.
This period of low prices and high volatility has impacted the crypto community, causing many to lose money and investors to pull out of the market. However, some believe this is just a normal part of the market cycle and that it will eventually recover.
Looking toward the Ethereum Merge
Since April 2022, the Ethereum blockchain has been running two parallel blockchains: one that operates using proof of work and another test chain that operates via proof of stake. The Merge will combine the legacy Ethereum Mainnet blockchain with the new Beacon Chain into one unified blockchain.
If you are a developer, you should be eager to get involved in this process. The Ethereum community is largely focused on the success of this merger, as it offers developers an opportunity to build upon the existing infrastructure of both platforms. The ability to scale and continue to develop new features for each network is something that can only be accomplished by merging them into one platform.
The news that the Merge might be due in August came from two more successful Ethereum mainnet shadow forks, which simulate the PoS transition using real-world conditions. These simulations are one of the final steps of testing developers will need to take before they deem the network ready to upgrade. Aside from minor hiccups, both of the most recent forks appeared to go well.
The Twitter discourse in the Ethereum developer community these past few weeks, while certainly aware of wider market conditions, has been pretty cheery with the news that the Merge is nearing completion. Ether’s price might not reflect this same level of enthusiasm to come to the Merge, but these past few weeks have added to a consistent string of reminders that prices are among the least interesting parts of this space.
Impact of a Bear Market
A bear market has been a long time coming for Ethereum, but investors have been able to hold on thanks to the steady development of the world’s second-largest public blockchain. Investors are looking for projects with real-world use cases and proven track records in a bear market.
Ethereum has both: it’s a foundational technology that powers decentralized applications (dapps) and smart contracts across the globe. These dapps offer users everything from decentralized storage solutions to social media networks.
However, as the bear market continues, it’s becoming increasingly difficult for app developers to raise capital from private investors. This is because many early-stage companies rely on initial coin offerings (ICOs) to raise funds during their early stages of development. Still, these ICOs have become less popular since late 2017 due to regulatory scrutiny from governments worldwide.
How Ethereum will be transformed in 2022
It’s hard to believe that Ethereum has been around for less than five years. In that time, it has grown from a project with a few thousand users to one of the most popular blockchains in the world. It’s also become the de-facto platform for blockchain-based applications, with thousands of developers creating their unique tokens and decentralized apps (DApps) on Ethereum’s network.
But this growth hasn’t come without challenges. For example, the high demand for Ethereum has led to some serious scaling issues. While Ethereum developers and miners are addressing these problems, there are still questions about what happens if the network can’t handle all the activity.
Despite all the cons and what some people do not want to hear about Ethereum, the year 2022 will mark a significant milestone for Ethereum. The network is expected to reach its capacity of 1 million transactions per second (TPS). It’s estimated that the Ethereum blockchain is already processing more than 1 million TPS.
How to Survive For Yourself In a Bear Market
Bear markets can be scary if you’re a beginner or even a veteran investor. If you’ve been investing for a while, you may have seen many bear markets and lived to tell the tale. But if this is your first one, you may feel anxious and uncertain about what to do next.
Take a deep breath. While it’s true that bear markets are painful and frightening, they’re also survivable. Here are some tips on how to personally survive in a bear market:
- Don’t panic sell. The best thing you can do is stick to your plan and don’t sell out of fear. If you need money right now, consider taking out the equivalent amount from savings or assets that aren’t tied up in stocks (like CDs).
- Make sure your portfolio is diversified across asset classes and geographies. During market turmoil, investors often sell everything at once because they’re worried about losing everything if their holdings fall too far. Diversification helps mitigate this risk because when one asset class falls significantly compared with others, it won’t drag down your entire portfolio as much as watching 10% of your stock investments lose 20% each week would do!
The bear market has permeated all cryptocurrencies and even affected the most valuable ones. In other words, the market is not in an optimistic position right now. This doesn’t bode well for the future of Ethereum Merge due to its near-reliance on the ETH token.
Featured Image: DepositPhotos © Primakov
Ray Schuetz received a Masters Degree in computer science from The University of Texas (Austin). Ray has been working as a full-time blockchain consultant for the past 3 years. In his spare time, Ray enjoys writing for EthereumCryptocurrency.com and other crypto news publications.