The cryptocurrency market started its fifth historic bear market in November last year. However, major cryptocurrencies like Bitcoin and Ethereum have dropped significantly from their ATH levels. In this article, we try to answer the question of when the market will recover by analyzing historical data.
Bitcoin bear market cycles based on historical data?
Cryptocurrencies are considered to be in a bear market when their price drops by 20% or more. Bear markets occur frequently. In the stock market, it usually happens every three to four years. In crypto markets, the intervals between bear cycles are shorter by about 2 years.
A recession is generally defined as an economic downturn that lasts for at least two consecutive quarters, as measured by a decrease in gross domestic product (GDP). On average, they occur every 10 years. Although crypto bear markets often overlap with financial markets, it is crucial to understand that a recession affects more than just financial markets. The entire economy slows down during a recession.
Depression
A recession of three years or longer is considered depression. The recession of the 1930s in the United States is an extremely unusual example of depression. In the last century, several depressions have occurred in various countries globally.
Current and historical economic downturns in the US are shown in this chart. It shows the extent of the S&P 500’s decline over the past 90 years and the duration of each bear market. This chart does not include the 2000 bear market because it lasted more than 600 days. Compared to some historical precedents, the current bear cycle for the US stock markets, which began in January 2022, can still be considered quite moderate.
Why should I consider the US stock market when analyzing the crypto bear market?
There are many parallels between the two financial markets. Since exchanges have a much longer history, there is a lot to learn from them. Cryptocurrencies and US exchanges have a strong link. Therefore, a rise or fall in the stock market is very likely to affect the crypto market as well. In other words, anything that affects the S&P 500 is likely to have an impact on the crypto markets as well.
Based on the available data, we can draw preliminary conclusions:
Are we in a bear market?
Yes. For several months, both Bitcoin and cryptocurrency and exchanges have seen huge losses. Bitcoin price has declined to this extent from the ATH price.
Are we in recession?
Yes. The global economy has only gotten worse since the start of 2022 and now has two consecutive negative growth quarters that are critical. And with the worst expected in the future, the recession could continue to affect us well beyond 2023.
Are we depressed?
Not yet. This will require the current economic crisis to continue into 2024-2025.
What have previous crypto bear markets taught us?
Now that we are aware of our current economic situation, what else can we deduce from historical data? One of the first approaches to appear is to consider how long and how sharply previous crypto bear markets have fallen.
How long did past bear markets last and how much was their impact?
The 2011-2012 market recession lasted for 185 days. During the process, the market melted 40%. The 2013-2015 bear market ended as 415 days plus months of sideways market movement. The market lost 83% of its value. The 2017-2018 market gloom ended in 365 days plus sideways moving months. The final depreciation was around 84%. In 2019-2020, the bear market lasted about 260 days and the market shrank 62%.
As we can see, the typical crypto bear market is down roughly 61% and lasted for 306 days, with a lot of sideways movement in the months that followed.
But this time it might be different
As discussed earlier, we are now entering a recession, and this is the first time a crypto bear cycle and a recession have coincided. What possible repercussions might this have?
Bear markets in the S&P 500 are much shorter when they don’t coincide with a recession as both happen at the same time. Non-sluggish bear cycles in US stock markets typically last only a few months and result in a drop of about 22%. The rehabilitation process typically takes 11 months to reach the old peak.
However, in a recession, the markets lose an average of 30%. The median time to jump to the previous high after the bottom is established is 48 months. Does all this mean that the current crypto bear market may be more severe and prolonged than its predecessors?
Undoubtedly, it is possible.
Additionally, given broader macroeconomic conditions, a quick return to stronger market expectations is unlikely.
Is there any good news then?
Yes. The technical charts are showing some positivity. The relative strength index (RSI) for the moon is extremely low as it was at the end of the bear markets in 2013-2015, 2017-2018 and 2019-2020.
This was a sign that the bottom was approaching previous bear cycles. Based on historical data, this negative cycle is not likely to stop anytime soon. We still need to prepare for falling prices or at least stable prices for several months. However, we also know from history that the mood towards cryptos can change suddenly. In any situation that arises, it’s important to keep your cool. Contrary to popular belief, the last third of a bear market is when investors usually experience their biggest losses.
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