When we zoom out and evaluate the cryptocurrency asset class over the course of its 14-year history, a clear pattern of boom and bust cycles becomes evident. Similar to the stock market, bear markets occur after lucrative bull runs, but one of the primary differences is that with cryptocurrency, these cycles seem to be more pronounced.
For the greater part of the last year, the cryptocurrency market was decimated. In part because of scandals, contagion, and overzealous companies capitalizing on an influx of capital in an unsustainable fashion, nearly every cryptocurrency lost significant value in 2022. And the macroeconomic backdrop of rising interest rates and multidecade-high inflation further stymied any hopes of a respite.
But there is reason to believe the worst might be coming to an end.
Past bear markets shed light on the road to recovery
To analyze when a bull market might reappear, it can be helpful to look at the past durations of bear markets. Furthermore, because so much of value in the cryptocurrency asset class is allocated to Bitcoin (BTC -1.10%), we can narrow our evaluation to just this coin, letting it serves as a proxy for the industry. Usually, as Bitcoin goes, so goes the rest of the market.
To begin, let’s define a crypto winter as an event when Bitcoin loses more than 75% of its value, something that has happened three times in the past decade.
The first time, it fell from its all-time high (up to then) of $1,133 on Nov. 29, 2013, all the way to just $172 by Jan. 14, 2015 — a drop of more than 85%. This bear market lasted 411 days when measured from top to bottom.
Eventually, Bitcoin regained momentum and notched a new high on Dec. 16, 2017, when it reached $19,587. Almost exactly a year later, it had tumbled to only $3,255 — an 83% drop.
Like past cycles, Bitcoin slowly began the winding ascent to a new (and its most recent) all-time high of $68,790 on Nov. 10, 2021. Since then, it has tumbled significantly as the aforementioned scandals plagued the crypto industry and resulted in a mass sell-off across the market.
This is where a little speculation comes into play. Optimists might hope that when Bitcoin fell all the way to $15,559 on Nov. 9, 2022 — a 77% decline — it represented the true bottom of the bear market. If this is so, then that puts this bear market at roughly 366 days and within the average duration of past declines.
Based on past crypto winters, it seems that Bitcoin just might have put the worst in the rearview mirror. But only time will tell whether this is actually the case and we have turned the page on this most recent crypto winter.
Currently, though, there is reason to believe this bear market is ending like those in the past because the entire crypto market has risen more than 40% year to date in 2023 and once again has surpassed the $1 trillion market cap mark.
If this plays out as crypto investors hope, then buyers at today’s highly discounted prices have the most to gain in the long run. Bitcoin might have finally mustered enough momentum to thaw this crypto winter and pull the rest of the market with it.
RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
