Are we currently in a crypto bear market? How do we define a cryptocurrency bear market? Is a crypto bear market approaching?
Macroeconomic headwinds and deteriorating market sentiment have pushed the crypto market to the 'edge of a bear market.' Both BTC and the COIN50 index have fallen below their 200-day moving averages, VC funding is weak, and market capitalization has evaporated by 40%. This report analyzes key cyclical indicators to assess whether we are entering a new round of crypto winter and offers tactical response suggestions. The recent drops of BTC and the COIN50 index below their respective 200-day moving averages signal a potential crypto bear market.
The overall market capitalization of the crypto market outside of BTC has significantly dropped by 41% from its peak of $1.6 trillion in December 2024, falling to $950 billion by mid-April, with VC funding down by 50-60% from the peaks of 2021-22.
Given the current situation, we believe defensive risk strategies should be adopted, although we expect crypto prices may bottom out in the latter half of Q2 2025, creating conditions for a recovery in the quarter.
Multiple signals converging may indicate the onset of a new round of 'crypto winter.' Global trade tariffs escalating and sentiment deteriorating sharply are the main causes. Currently, the total market capitalization of the crypto market outside of BTC has fallen to $950 billion, down 41% from the $1.6 trillion peak in December 2024 and 17% lower than the same period last year. From a historical perspective, the current market cap is even below most of the time from August 2021 to April 2022.
At the same time, although VC funding in Q1 2025 has slightly rebounded from the previous quarter, it remains 50-60% lower than the peak levels of the 2021-22 cycle. This greatly limits the entry of new capital, especially in the altcoin sector. The aforementioned structural pressures stem from the uncertainty of the macro environment—traditional risk assets are continuously suppressed by fiscal tightening and tariff policies, leading to a stagnation in investment decisions. Even when the stock market is affected, the crypto industry may benefit from favorable regulatory conditions, but it is still difficult to disguise the challenging road to recovery.
Various factors intertwine to depict a challenging cyclical outlook for the digital asset space, necessitating caution in the short term (or the next 4-6 weeks). However, we believe investors should adopt tactical response strategies, as a rebound may occur swiftly once sentiment resets. We still maintain a constructive expectation for the second half of 2025.
Definitions of bull and bear markets.
A common standard for defining bull and bear markets in traditional stock markets is a 20% rise or fall from recent highs or lows. However, this standard is somewhat arbitrary and less applicable in the highly volatile crypto market, where cryptocurrencies like Bitcoin often experience 20% fluctuations in a short period, which does not necessarily indicate a genuine change in market structure. Historical data shows that Bitcoin can drop 20% in a week and still be in a long-term uptrend, and vice versa.
Furthermore, the crypto market trades around the clock, so it often acts as a substitute indicator of global risk sentiment during traditional market closures (such as overnight and on weekends), amplifying its price reaction to external events. For example, during the Federal Reserve's aggressive rate hike cycle (from January to November 2022), the S&P 500 fell by 22%, while Bitcoin's price dropped by as much as 76% since November 2021, a loss nearly 3.5 times that of the stock market.
What is a bear market?
Bear markets are characterized by a lack of confidence, oversupply, and falling prices. Therefore, investors who are pessimistic about price increases and have little hope are referred to as bears. For novice investors, understanding the complexities of bear markets may be a daunting task. Since rebounds are often a gradual and unpredictable process influenced by various external factors such as the global economy, regulations, and general investor sentiment, it is challenging to predict when a market will reach its lowest price point.
However, they can open up new options. Additionally, if you have long-term investment plans, buying during market downtimes may yield substantial profits when the cycle turns. Investors focused on short-term gains should temporarily pay attention to asset price fluctuations. Experienced investors may get ahead of the curve and resort to short selling, which includes betting on the drop in asset value. Dollar-cost averaging is another strategy used by many cryptocurrency investors. By diversifying risk, you can invest during both bull and bear markets.
The impact of a bear market.
In the crypto market, from an investor's perspective, it is important to determine whether the market is bearish or bullish. We will discuss the impact of bear markets on cryptocurrencies, covering the following aspects:
Supply and demand - Although in a bearish market, investors tend to seek to sell their assets, this seems unfeasible as demand is relatively low compared to supply. This leads to asset price deterioration.
- Market performance - A bearish market means investors are unwilling to trade their crypto assets due to unreliable economic performance.
Investor outlook - Since a very crucial part of crypto trading is investor psychology, negative intuitions may force investors to sell their assets due to lack of confidence. This not only leads to further price declines but also encourages other investors in the market to do the same.
- Crypto prices - A bearish market typically means a decline in the prices of crypto assets.
Liquidity decreases in a bearish market as investor confidence is relatively low, reducing asset liquidity.
The truth in contradiction.
The primary observation regarding the stock market's '20% bull-bear line' is that this standard has never achieved unanimous recognition and is more like a rule of thumb. As U.S. Supreme Court Justice Potter Stewart once said: 'I can't define it, but I know it when I see it.' Identifying market trends often relies on intuition and experience rather than rigid formulas.
Nevertheless, to formalize measurement standards, we analyzed the high and low closing prices of the S&P 500 over a rolling year to determine key reversal timings. Over the past decade, this indicator has shown that U.S. stocks experienced about four bull markets and two bear markets—excluding the recent pullback from late March to early April (our model has also begun signaling a bear market recently). See Chart 1.
However, this standard overlooks at least two significant pullbacks of 10-20%, such as the volatility spike caused by the fluctuations in the Chinese stock market at the end of 2015 and the global trade uncertainty in 2018. See Chart 2.
We have previously seen that although the declines did not reach the traditional 20% threshold, sentiment-driven market declines often trigger defensive adjustments in portfolios. In other words, we believe that bear markets essentially represent 'institutional shifts' in market structure—characterized by deteriorating fundamentals and liquidity contraction—and should not be defined solely by percentage declines.
Moreover, the '20% rule' may lead investors to become complacent and overlook important warning signs, such as a shrinking market depth and rotation into defensive sectors, which often precede significant declines in history.
Alternative indicators.
Thus, we prefer to seek indicators that better capture the subtle interactions between price and investor psychology—applicable to both stocks and crypto assets. The bear market is essentially a cycle about 'returns' but also reflects a continuous deterioration of 'sentiment,' as sentiment is the primary cause behind the long declines that investors are most reluctant to face. Understanding this concept is quite subtle—the 'reversal' we seek does not necessarily have to be a sustained expression of a long-term trend. The COVID-19 pandemic is a classic example of a rapid rebound after a short, sharp decline. Of course, its transience largely results from the rapid and powerful responses of global fiscal and monetary policies—otherwise, investors might face longer periods of drawdown.
Therefore, rather than relying on rules of thumb, we prefer to focus on the following indicators.
Risk-adjusted performance (measured by standard deviation).
200-day moving average (200d MA).
For instance, from November 2021 to November 2022, Bitcoin's performance declined by 1.4 standard deviations (z-score) relative to its average performance over the previous 365 days, while during the same period, the standard deviation of the stock market fell by 1.3, indicating that from a risk-adjusted perspective, Bitcoin's 76% drop is comparable to the S&P 500's 22% drop after adjusting for volatility.
Since this indicator naturally accounts for the higher volatility in the crypto market, the z-score is very suitable for analyzing the trends of crypto assets. However, it does have certain limitations: it is relatively complex to calculate, generates fewer signals during calmer market periods, and reacts relatively late to trend changes. For instance, our model indicates that the recent bull market cycle ended in late February this year, but subsequent market activity has been classified as 'neutral,' highlighting the potential lag of this method in rapidly changing markets.
In contrast, we believe the 200-day moving average provides a cleaner and more reliable way to identify sustained market trends. Since it requires at least 200 days of data for calculation, it can effectively filter out short-term noise and dynamically adjust as prices change, presenting a clearer momentum trend picture. Its judgment logic is also very intuitive:
If the price remains above the 200-day moving average and is accompanied by upward momentum, it indicates a bull market.
If the price remains below the 200-day moving average and is accompanied by downward momentum, it indicates a bear market. In our view, this method not only aligns well with the trend signals provided by the '20% rule' and the z-score model but also offers more operational insights in a rapidly changing market environment. For instance, the 200DMA model not only captured market pullbacks during the COVID-19 pandemic (early 2020) and the Federal Reserve's rate hike cycle (2022-23) but also effectively identified the 2018-19 crypto winter and the mid-2021 market downturn triggered by China's ban on crypto mining. Additionally, we found that this indicator can correspond well to significant fluctuations in investor sentiment during different periods (see Charts 5 and 6).
Crypto winter?
So, are we currently in a crypto bear market? As of now, our primary focus of analysis is on Bitcoin, as its historical data allows for comparisons with traditional markets like U.S. stocks. However, even though Bitcoin is generally viewed as a representative of crypto market performance, as this asset class expands into new areas like memecoins, DeFi, DePN, and AI Agents, its role as a market benchmark is increasingly diminishing.
For example, the Bitcoin-based 200DMA model shows that the recent dramatic drop aligns with a new round of bullish market cycles that began in late March. However, applying the same model to the COIN50 Index (which includes the top 50 tokens by market cap) indicates that this asset class has clearly been in a bear market since the end of February. This also aligns with the overall crypto market capitalization (excluding BTC) dropping 41% from its peak in December 2024, while Bitcoin itself has declined by less than 20%, highlighting the high volatility and risk premium of altcoins at the tail end of the risk curve.
Should you invest in a bear market?
To determine whether and how much to invest in a bear market, the usual rules still apply, but you need to follow stricter risk avoidance strategies to ensure you get the asset's report. Market leaders like Bitcoin or Ethereum are often excellent choices for investment during a bear market; although it may be challenging to acquire them like other currencies, you will obtain them for less money, and they are most likely to appreciate rapidly during market rebounds. Crypto traders often buy during bear markets to profit from lower crypto prices. Therefore, they are more likely to secure substantial profits when optimistic markets emerge. Like any other trading strategy, this involves risks. Thus, understanding past trends and staying informed about crypto news are crucial.
During market crises, other cryptocurrencies may seem like a good option, but they often delay returns that may not exist and may not be a good investment. Please research carefully before investing in any cryptocurrency.
How should you invest in a bear market?
Given the lack of confidence among investors in cryptocurrencies during price declines, investing during bullish markets carries inherent risks. However, this risk could lead to greater returns in the future. Thus, you may purchase cryptocurrencies for less money and then sell them during the peaks of the next bull market. Investors can also sell their liquid assets early when they detect declines and then repurchase at lower prices when the market further declines. Since various factors can lead to bear markets, their duration is relatively difficult to predict. The issue is that no one knows exactly how long or how far price declines will last, so you risk impulsive purchases or missing out on valuable opportunities.
Investors can use various strategies to profit from and survive in the volatile crypto market. Regardless of whether a long-term crypto winter exists, investors can use these strategies to manage their overall risk and portfolio more effectively. We will now discuss in detail what to do in a bear market from an investor's perspective.
Utilize strategic investment strategies.
Investors can gradually and in small amounts purchase assets using various techniques, one of the most important of which is the dollar-cost averaging technique. This method reduces the impact of price fluctuations caused by volatility through averaging prices. While this method may ultimately help investors connect with fundamentally sound companies, delaying until the consolidation phase begins may also be beneficial. DCA investors should prioritize initiatives involving the community, sustainability, and reliable roadmaps that clarify their long-term goals.
Short selling cryptocurrencies.
Shorting Bitcoin is intended to buy it back at a lower cost in the future. The goal is to purchase when a price drop is anticipated. Since the opportunity to profit from the decline of cryptocurrencies is proportional to the risk of loss, shorting can be a viable strategy, but caution is necessary when deciding how and where to short the crypto market. Timing is essential when it comes to shorting. Take some time to learn more detailed shorting techniques and how to determine if they are beneficial or harmful.
Diversified portfolio.
Financial experts recommend diversifying portfolios to ensure not all assets are cryptocurrencies during market downturns. If one component of the portfolio underperforms, the likelihood of severe disaster decreases. Cryptocurrency investors may diversify their holdings by seeking new investment projects and focusing on currencies with good track records. It is beneficial to look at crypto projects that are currently in their early stages. DAOs are newer projects that allow anyone to participate fully in the creation and financial success of the projects. Due diligence and thorough investigation of enterprises must be carried out before formulating crypto bear market strategies.
Try crypto staking.
Staking is a simple strategy that can enhance the value of a portfolio over the long term during the entire crypto bear market. Staking further helps to reduce the anxiety caused by regular price fluctuations. When investors focus on market trends, they risk making emotional judgments. When investors wait for market reversals during crypto bear markets, staking coins may allow you to earn extra cash. Native tokens can be staked on multiple first-layer protocols' networks for returns.
Maintain discipline when trading.
Many people are now engaging in short-term trading. Trading can be optimized by increasing stop-loss levels to secure the best prices. In a bear market, it's essential to accept gains before finding life-changing profits. It's best to accept fixed, modest income. Regardless of whether significant increases are reduced, profits will still exist. Relying solely on speculative prices is dangerous, as they are often unsustainable.
Ensure you firmly grasp sentiment.
Due to the malaise in the cryptocurrency market, many investors have experienced emotional fluctuations. When things are constantly changing, it's easy to make potentially dangerous emotional judgments. When bear markets appear before crypto winters, investor sentiment may become very volatile. Investors must always exercise caution, as fear and ambition can lead to poor decisions. By combining wise DCA and diversification strategies, traders can help prevent emotional decisions that may harm them.
Summary.
With Bitcoin's role as a 'store of value' increasingly reinforced, we believe there is a need to evaluate the cyclical characteristics of the crypto market from a more holistic perspective, especially in the context of its continuously diversifying domain. Nevertheless, both BTC and the COIN50 index have fallen below the 200-day moving average, signaling a long-term weakening of the overall market. This correlates with the overall market capitalization shrinking and VC financing declining, possibly heralding the arrival of a crypto winter. Therefore, we believe defensive risk strategies should be adopted at present, although we still believe that crypto market prices may stabilize in the latter half of Q2 2025, laying the groundwork for a recovery in Q3. At this stage, investors must remain highly alert to the challenges posed by the macro environment.
This concludes Brother Liang's detailed introduction on how to define a cryptocurrency bear market. Are we currently in a crypto bear market? We hope you enjoy it! #币安HODLer空投LA $BTC
