How crypto bear markets work

Bear markets are no fun, but they are also not the end (usually).

The big picture: The crypto market is still very new. There are risks and shaky technologies, many of which are spectacularly drawing attention this week. But at the same time, the industry is standing firmer today than it was in the Crypto Winter of 2018, the last bear market.

  • Traditionally, a bear market has been viewed as a time when an asset is trading 20% ​​or more below its previous high, usually accompanied by a lot of pessimism about the near-term future.
  • But this is a nonsensical way of thinking about crypto. A 20% drop could just be a weird Tuesday.

Anyway, we may have arrived at bear. The mood has to change, and maybe we’ll be there.

  • Bitcoin has fallen to less than half of its most recent all-time high of $69,045 as of Nov. 10. That alone is probably enough to call this a bear, but if it falls below $20,000 (the highest ever from the previous bull), that will be symbolically powerful.

Data: CoinGecko; Table: Axios Visuals

But with crypto it’s not actually a bear market until there are real consequences, such as:

  • closing funds,
  • Startups shutter or
  • “Established” Crypto Firms Begin Announcing Layoffs

Be smart: This is where things are different this time. Billions of dollars are being used to build the industry. This year announced venture capital funds with over $1 billion under management, including Haun Ventures, Electric Capital, the new fund of Andreessen-Horowitz, FTX Ventures and others.

  • That’s enough to launch many companies and bolster their best bets in tough times.

Brady’s Thought Bubble: Crypto won’t be “dead” after a serious downturn, but it could disappear from the national conversation again. Either way, the industry continues.

  • One of these days, something will get people excited again, and the market will brighten up again.

context: The bear market kicked off in 2018 when news circulated that the US Securities and Exchange Commission knocked on the door of startups funded by initial coin offerings (ICOs).

  • Back then it was difficult to buy anything other than bitcoins with dollars. So eager investors bought bitcoins, traded them for ethers, and then bought into ICOs. That drove up the price for everything.
  • The demand for ICOs was basically all the demand for cryptocurrency, so when it dried up, the whole industry dried up.

Today there is not such a clear single cause, partly because the cryptocurrency market now has more use cases and more operating companies.

  • After learning from 2018, crypto companies are prepared.
  • As early as 2021, projects began to hedge their volatile government bonds by shifting some of their funds to dollar-backed stablecoins so they could absorb a downturn.

It comes down to: Bear markets are well known. No one likes them, but they come often enough that the established leaders know how to ride them out.

Go deeper: Teach yourself cryptocurrency in 10 steps with $100

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