A new round of crypto bear market is underway. CoinGecko data shows that as many as 72 of the top 100 coins by market cap have fallen by more than 90% from their all-time highs. Nine of the top 10 cryptocurrencies by market cap have lost less than 90% during the current market downturn. Among them, Bitcoin fell 70.3% from its high of $69,000 in November last year, and Ethereum fell 78% from its high of $4,878. BNB, ADA, SOL, and DOT fell between 68% and 88%, and XRP fell 90.56% from its all-time high.
What is a crypto bear market
A bear market is defined as a period of prolonged price declines of 20% or more in any given financial market, leading to widespread fear and pessimism. Periods of these market declines are inevitable, and they happen every once in a while, and are completely normal. Bear markets happen frequently. On average, they happen every 3-4 years in the stock market. In cryptocurrencies, the time between bear market cycles is shorter, around 2 years.
Cryptocurrencies have gone through multiple bear markets. The current price started in November 2021 and so far the price drop has been going on for 7 months. The question everyone is asking is: how long will it last?
Before discussing this round of crypto bear market, we have to mention the U.S. stock market. The main reason: both are financial markets with many similarities. The correlation between cryptocurrencies and the U.S. stock market is high. This means that when the stock market rises or falls, cryptocurrencies are most likely to follow. In other words, what affects the S&P 500 may also affect the crypto market. The current state of the crypto market is more due to macro factors.
More macro-level inflation and signs of recession are the main reasons. A recession is usually an economic downturn for at least two consecutive quarters, which is defined as a decline in gross domestic product (GDP). They happen about every 10 years. It’s important to understand this here: In a recession, it’s not just financial markets that take a hit, although bear markets do often overlap with them. In a recession, the entire economy is slowing down.
The crypto market is already in a bear market after months of heavy losses in both the cryptocurrency market and the stock market. On the other hand, we’re also in a recession, and the global economy has gotten worse since the beginning of 2022—it has now reached a tipping point for two consecutive quarters. The Fed is also fighting inflation by raising interest rates sharply. The prevailing view is that there is a 50% chance of a recession as the Fed battles inflation, though a deep or prolonged recession is unlikely and the Fed will eventually get inflation under control.
Fed Mester said the risk of a U.S. recession was growing and that it would take “several years” for inflation to return to the Fed’s 2 percent target. I don’t predict a recession, but recession risks are rising, in part because the shift in monetary policy may be a little earlier than before, and we’re doing that now by raising interest rates.
In a certain period of time, the general macroeconomic backdrop of rising inflation levels and the Fed’s continued interest rate hikes will put pressure on Bitcoin prices. The extreme volatility in the crypto market is mainly caused by macroeconomic factors. And as the interest rate hike continues, the effect will remain, and encryption will remain under pressure. The overall tone remains negative, with monetary tightening creating macro headwinds and a crisis within cryptocurrencies raising concerns about mounting woes. In an established bear market, it is more important to consider how to survive the bear market.
How to Survive a Bear Market
The first is the right mindset. Many people don’t often associate philosophy with investing, but in many ways the two go hand in hand. Now, there are many different philosophies to draw from when developing an investment mindset, but there is one that stands out—Stoicism. Stoicism, also known as Stoicism, is one of the four major philosophical schools of ancient Greece, and one of the longest popular philosophical schools in ancient Greece.
The Stoics teach that people should focus on what they control and discard the elements they cannot control. This is useful for investing because many things are beyond your control and can be frustrating at times. You can’t control how much money you take out of your investments, but you can control how much you put in and how you respond when things don’t go your way. The Stoics also believed in preparing for the worst. They imagine the worst possible outcome and ask themselves how they would overcome such an event if it happened. In the world of investing, the worst-case scenario is always that you lose all your money. For this reason, the advice to only invest in what you can afford to lose is useful, because even if the worst happens, you know deep down that you’ll still be fine and recover from it.
Another option to diversify is to put your cryptocurrency on a DeFi protocol or crypto wallet that offers it, a great way to let your idle coins earn some passive income during a bear market. Also, be careful with leveraged trading. During a bear market, the most unpredictable events can happen, and no amount of technical analysis can save you. For example, the recent price crash of Luna and UST de-pegging from the USD is an event that you can easily be liquidated. In general, leveraged trading is a risky venture and only advanced traders should consider getting involved.
Most people hate bear markets, which makes perfect sense considering most people lost a lot of their personal wealth during this time. Amid all the negativity, however, lies the benefits and opportunities that crypto whales and smart investors keep for themselves. Be fearful when others are greedy, and be greedy when others are fearful, is a hard thing to do.
A bear market helps remove all the noise left by a bull market. In a bull market, anything can look like a good investment because everything is going up, however, it is only during times of stress that the true value and strength of a project will be revealed. Antifragility is the quality that tests whether an item can grow stronger and thrive.
Advice from investors
Anthony Scaramucci, founder of Skybridge Capital, which manages $3.5 billion in assets, has some advice for cryptocurrency investors on how to survive a bear market. “We are in a bloody battle,” he said. “This is my eighth bear market, and I expect to survive this one,” Scaramucci told CNBC, first advising people to “stay unleveraged, but stick to your long-term investing discipline.” Scaramucci described. “Everyone has a long-term view until they have a short-term loss…then they start burning their heads and running around in circles,” he said. “I’m just admonishing people to buy. A high-quality product, unaffected by leverage, and disciplined.” He added that investors should “recognize that a bear market is happening,” adding, “If you look at the past 120 years, they may be every five years. happened once.” he pointed out. “If you’re disciplined during these times, you’re going to make yourself very rich, and I think that’s the message to investors.”
Haseeb Qureshi, managing partner of Dragonfly Capital, said at the Consensus 2022 conference that cryptocurrencies have five unsolved problems, namely identity, scalability, privacy, interoperability and user experience. Nearly all long-term successful crypto projects address one of these long-standing problems, said Qureshi, who defines “success” here not as a financial victory but as a blockchain project that is looking for real use. Furthermore, Qureshi said that almost all successful crypto projects today were built in bear markets.
Spartan Partner Spartan Black said that venture funds are designed to provide investors with the opportunity to invest in early-stage projects, often without exiting for 5 years or more, because early-stage projects take time to adapt to the market and scale. Some funds that prefer a liquid hedge strategy like to put their early investments in liquid hedge funds, which we don’t think is appropriate. Spartan will not sell in a bear market of liquidity crunch, create a crisis for projects or lead into a death spiral. This is a concern for most founders, and it creates an existential crisis for the project.
Paul Veradittakit, a partner at Pantera Capital, recently wrote “Surviving Bear Market”. The article pointed out that the last bear market was only a short 71 days, and now may be the beginning of this bear market. The bear market is not terrible because it allows companies to focus on construction, and Top talent is already entering the crypto space, and since many companies are undervalued during a bear market, it’s a good time to invest, during which time investors will find companies with great value and long-term success.
Therefore, Paul Veradittakit gives five tips for entrepreneurs:
- At least raise funds to maintain operation for 24 months.
- Pay attention to realization and business model early to create exit value.
- Reduce excessive spending. In the cryptocurrency market, spend less on marketing during a bear market and invest more in the next bull market.
- Review and cut back on service agreements or renegotiate.
- Large companies should actively seek acquisition targets.