An in-depth analysis of historical data.
Disclaimer: The content of this article is only for education and entertainment purposes only and should not be treated as financial advice.
Crypto is experiencing its 5th or so bear market. The current one started in November 2021 and so far it has been 7 long months of falling prices. The question everyone keeps asking is: how long will it last?
In this article, I try to answer this question by looking at historical data and combining insights from past bear markets and recessions over the last 100 years.
Bear Market, Recession, Depression — What Is The difference?
To get a clear understanding of what we are talking about, we need to sort out some terminology first.
Bear market. A bear market is a stock or crypto market decline by 20% or more due to negative investor sentiment that lasts a minimum of 2 months. Bear markets happen regularly. On average, they occur every 3–4 years in stock markets. In crypto, the times between bear cycles are lower — roughly 2 years.
Recession. A recession is typically a minimum of two consecutive quarters of economic decline which is defined as a fall in the gross domestic product (GDP). They happen about every 10 years. What’s important to understand here is this: in a recession, it’s not just the financial markets taking a hit, though bear markets do often overlap with them. In a recession, the whole economy is slowing down.
Depression. Depression is a prolonged recession that lasts 3 or more years. They happen very rarely with the US depression of the 1930s being a prime example. Globally, we saw a couple of depressions in different countries over the last 100 years.
This graphic is a good visualization of current and past economic downturns in the US. It shows how the S&P 500 was impacted in terms of decline and duration over the last 90 years. The year 2000 bear market is not included in this graph as it lasted for more than 600 days. The current bear cycle for US stock markets began in January 2022 and as you can see, it can still be considered to be quite tame when compared to some historic examples.
You might wonder, why I am taking the US stock markets into consideration here when this article is about the current crypto bear market. Two reasons:
- Both are financial markets with many similarities. So we can take a lot of clues from the stock markets which have a much longer history.
- The correlation between crypto and US stock markets is high. Meaning that when stock markets go up or down, crypto is most likely to follow. In other words, what affects the S&P 500, likely also has an impact on crypto markets.
Knowing all of the above, we can draw our first conclusions.
Are we in a bear market? Yes. Both crypto and stock markets have seen significant losses for multiple months.
Are we in a recession? Yes. Since the beginning of 2022, the global economy has only gotten worse — now reaching the critical mark of two consecutive quarters. And as I wrote in earlier articles, the worst is still to come. Most likely, this whole thing will stick with us for a long time — well into 2023.
The Ukraine War Triggers The Next Recession
It Could Also Set Off A Global Famine. Time To Stock Up On Food And Other Things.
Are we in a depression? No, not yet. For this, the current economic crisis would need to last until 2024/2025. While it’s impossible to predict how things will play out, let’s hope for the best for now and that things will improve again in the coming year.
What Can We Learn From Past Crypto Bear Markets?
Alright. Now that we know where we are standing, what else can we learn from historic data?
One obvious step is to look at how long past crypto bear markets have lasted and how strong the declines have been.
2011–2012 bear market
Duration: ~185 days + months of market-moving sideways
2013–2015 bear market
Duration: ~415 days + months of market-moving sideways
2017–2018 bear market
Duration: ~365 days + months of market-moving sideways
2019–2020 bear market
Duration: ~260 days
As we can see, the average crypto bear market lasted for 306 days (plus a lot of sideways movement in the following months) and saw a draw-down of about 61%.
But this time it could be different.
As said before, we are now in the process of entering a recession. And this is the very first time a crypto bear cycle will overlap with a recession.
What could be the implications of this?
Let’s pull up another chart. When bear markets in the S&P 500 happen but don’t overlap with a recession, they are considerably shorter compared to when a recession is taking place at the same time.
In US stock markets, non-recession bear cycles tend to last only 2–3 months on average and produce a draw-down of about 22%. The median duration of the recovery back to the previous high is 11 months. However, during a recession markets lose an average of 30% of value. After the bottom is formed, the median time it takes to recover back to the previous high is 48 months.
Does all of this mean that this bear market for crypto could be longer and harder than the ones before? It is definitely possible.
In addition, overall macroeconomic factors don’t favor a soon return to better market prospects.
How Low Will Bitcoin Price Go In 2022?
Analyzing technical and macroeconomic facts and how you should prepare for what is to come.
Doesn’t look very promising. Any good news at all?
Yes. Technical analysis offers a glimpse of hope. Monthly RSI (Relative Strength Index) is at the same very low level as it was at the end of the 2013-2015, 2017-2018, and 2019–2020 bear markets. During past bear cycles this was a sign that the bottom was near.
Going purely by historical data, it doesn’t look like this bearish cycle is going to end any time soon. Much more, we still have to be prepared for many months of falling prices or, at best, prices moving sideways. But what we also know from experience: the mood around crypto can change very quickly.
In any case, it is important to keep a cool head. Contrary to the opinion of many, the biggest losses are not made at the beginning but in the last third of a bear market.