Everything To Know About a Crypto Bear Market

22 November 2022

If you have been trading crypto, you certainly have heard the terms “crypto bear market” and “crypto winter.” Ultimately, this is a situation where the market sells off quite drastically, but understanding it can lead to opportunities that traders can take advantage of. When you hear the term “bear market,” it typically means that a market has dropped by over 20%. This harkens back to Wall Street, which uses the term bear market to describe when large amounts of losses have been realized. That being said, the term itself does not mean much; it’s just the way to determine that the market is in a downtrend.

For example, you need to keep in mind that crypto is much more volatile than stocks. So, for the S&P 500 to drop 20%, it’s a much more significant move than something like Bitcoin. That being said, as the crypto markets mature, you should see less of these volatile moves. Simply put, the larger crypto market should begin to act like stock markets, as large amounts of institutional money flow into the sector.

Generally, a bear market in crypto means we have been falling for a while. It does need to lose at least 20%, but there is nothing magical about that particular level, only that it is a traditional gauge.

The Causes of a Bear Market

There are multiple reasons why a market may turn bearish. Traditionally, bear markets in history have had some similarities, but crypto is slightly different from traditional markets. This is because crypto is especially sensitive to risk appetite. When there is much fear out there, large institutional traders have no interest in trading something like cryptocurrency, which is volatile under the best circumstances. In this environment, traders typically look for safer assets, such as a stock that pays dividends and has been around for decades.

Another reason they may avoid crypto is that they are much more comfortable buying bonds. After all, if you can get a guaranteed return in a relatively low volatility environment, it becomes much more palatable than trying to time the change in the overall attitude of the cryptocurrency.

One of the main reasons that there have been bear markets in crypto has been simple growing pains. Adoption is not taking off like once thought, so it takes less negativity to get the market moving to the downside. This is especially true with the smaller altcoins, which have a low volume to begin with. For example, if there is a lot of risk aversion, most people are unwilling to buy something like Dogecoin.

Phases of a Bear Market

You need to be aware of a couple of stages during a bear market, as they don’t happen in one move. That being said, the market will likely continue to see phases you can identify if you know what to look for.

Why is the 2022 crypto winter, unlike previous bear markets?

There are several reasons why the 2022 crypto winter differs from previous bear markets in cryptocurrency. The first one is just simply the amount of money involved. There are a lot of institutional players involved in cryptocurrency now, so in and of itself, that makes it a different dynamic.

Remember, most of these funds are beholden to investors, so they do not take unnecessary risks. This means the institutional money may be on the sidelines longer than anticipated. In the past, Bitcoin and other crypto markets were supported mainly by retail traders, so it took a lot less to get things moving again.

Central banks worldwide continue to tighten monetary policy, which takes many risks off the table. Because of this, until the Federal Reserve pivots from its hawkish behavior, an asset like crypto will not perform very well, as it is far out on the risk curve. Ironically, while crypto was supposedly going to get people away from the traditional banking system, it found itself waiting on the Federal Reserve.

Common Mistakes to Avoid During a Crypto Bear Market

There are several common mistakes that you can make during a crypto bear market. This is mainly because crypto has a habit of going on a bull run for years at a time, and therefore people are trained to buy dips and always look to the upside. The reality is that there are a lot of different things that move the market, not just simple “hype.”

How to Survive a Crypto Bear Market: Investment Strategies for Bear Markets

There are a few basic strategies you can employ to survive a crypto bear market, and you can even profit from this situation if you know what you are doing.


Bear markets in crypto tend to be quite vicious, but you can say the same about any asset. The big difference in crypto is that it is volatile under the best circumstances, as the markets are still new. That being said, there are many things that you can do to make it a good situation. The first thing, of course, is that you can trade CFDs right here at PrimeXBT. This allows you to short-sell a cryptocurrency without having the hassle of being involved in futures markets, nor do you have to take delivery of anything. It’s simple to press a button and close out the trade to make a profit or cut your losses.

If you are a longer-term holder of crypto, you can do a few things to mitigate some of the losses. For example, you can diversify your crypto portfolio by having more stablecoins than riskier assets. Perhaps you put a certain amount into Bitcoin, the biggest coin out there. In a more challenging environment, you want to stick with less volatility, reversing things when the market becomes much more positive.

You can also use technical indicators to understand what the market may or may not be doing. It can give you a “heads up” on the market’s momentum and when we may see a trend change. Perhaps even more importantly, money management is crucial as it can keep you from “betting the farm” on one particular market, exposing your portfolio to extreme risks. In short, it’s about diversification and a bit of temperance to keep your account more stable.

FAQ: Frequently Asked Questions




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