How long will the crypto bear market last? A look at past recessions
With the cryptocurrency market in its fifth historic bear market, which began last November, prices of major tokens have fallen significantly from their all-time highs.
How long will the current bear market last is the question everyone is asking.
By analyzing historical data and fusing observations from past bad markets and recessions over the past 100 years, we attempt to provide an answer to this question.
How are the terms “bear market,” “recession,” and “depression” different?
We must first define these terms to understand what we are talking about.
Bear market
When the price of stocks or cryptocurrencies falls by 20% or more and the fall continues for at least two months, it is considered to be in a bear market.
Bear markets occur frequently. In the stock market, they usually happen every three to four years. The intervals between bear cycles in crypto markets are shorter, approx. 2 years.
Recession
A recession is usually defined as an economic downturn that lasts for at least two consecutive quarters, as measured by a reduction in gross domestic product (GDP).
They occur on average every 10 years.
It is crucial to realize that while crypto bear markets often overlap with financial markets, a recession affects more than just financial markets.
The entire economy slows down during a recession.
Depression
A three-year or longer recession is considered a depression.
The American Depression of the 1930s is an extremely unusual case of depression.
During the last century, several depressions have occurred in different countries globally.
The current and historical economic downturns in the United States are illustrated in this graph.
It shows the extent of the S&P 500 decline and the duration of each bear market over the past 90 years.
This graph does not include the 2000 bear market because it lasted more than 600 days.
Compared to certain historical precedents, the current bear cycle for US equity markets, which started in January 2022, can still be considered quite mild.
When analyzing the crypto bear market, why consider the US stock market?
There are many parallels between the two financial markets.
Since stock markets have a much longer history, there is much to learn from them.
Cryptocurrencies and US stock markets have a strong link.
Therefore, there is a high probability that a rise or fall in the stock market will also affect the crypto market.
In other words, anything that affects the S&P 500 is likely to have an effect on the crypto markets as well.
Based on today’s data, we can draw preliminary conclusions:
Are we in a bear market?
Yes. For several months, both the cryptocurrency and the stock market have suffered heavy losses.
Have we entered a recession?
Yes. The global economy has only gotten worse since the start of 2022 and has now had two consecutive quarters of negative growth, which is critical.
And with the worst expected in the future, the recession could continue to affect us well beyond 2023.
Are we in a depression?
Not yet. This would require the current economic crisis to continue through 2024–2025.
What have past crypto bear markets taught us?
What else can we infer from historical data now that we are aware of our current economic situation?
An apparent first approach is to consider how long and how sharply past crypto bear markets have fallen.
2011–2012 market decline
Duration: 185 days + months of sideways market movement.
Reduction: -40%
2013-2015 bear market
Duration: 415 days plus months of sideways market movement.
Reduction: -83%
2017–2018 market gloom
Duration: 365 days plus the months that move sideways.
Reduction: -84%
Bear market in 2019–2020
About 260 days.
Reduced by -62%
As we can see, the typical crypto bear market experienced a decline of about 61% and lasted 306 days, plus a lot of sideways movement in the months that followed.
But it could be different this time
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 consequences could this have?
Bear markets in the S&P 500 are far shorter when they do not coincide with a recession than they are when both occur simultaneously.
Non-recessionary bear cycles in the US stock markets typically last only a few months and result in a drawdown of around 22%.
The rehabilitation process usually takes 11 months to reach the previous peak.
However, markets lose value by 30% on average during a recession.
The median time it takes to return to the previous height once the bottom is established is 48 months.
Does all this mean that the current crypto bear market could be more severe and prolonged than in the past?
No doubt it is possible.
Additionally, a quick return to a stronger market outlook is unlikely given the broader macroeconomic circumstances.
Any good news then?
Yes. Technical charts show some positivity.
The relative strength index (RSI) for the month is at the same extremely low level it was at the end of the 2013-2015, 2017-2018 and 2019-2020 bear markets.
This was a signal that the bottom was approaching in previous bear cycles.
Conclusion
It doesn’t look like this negative cycle will stop anytime soon based on historical data.
We still have to prepare for several months of falling prices or at least flat prices.
But we also know from history that the sentiment towards crypto can change suddenly.
In any situation that arises, it is important to maintain calm.
Contrary to popular belief, the last third of a bear market is when investors often experience their worst losses.
