Between January 2020 and December 2021, BTC would grow over 600% from $7,200 to $50,800. This era would be hallmarked by the industry’s explosive growth, both in terms of price and presence in social media and mass culture.
The situation, however, may have been entirely misread. The expansive growth in the crypto industry may have been dictated disproportionately by speculation and greed rather than adoption.
Over the next 12 months, Bitcoin would lose over 65% of its value in what is now known as the 2022 crypto winter. Ethereum would follow suit with its own 67% drop.
At the first sign of macroeconomic challenges, massive industry scandals, and transitory bubble burst, expert consensus caught the edge of a frenetic bull market and thrust investors into a season of the bear.
The Season Of The Bear
Despite extremely negative sentiments moving forward, this wouldn’t be the first time crypto investors face a hawkish economy.
Here are two similar situations where the crypto markets lost the majority of their value:
Between April 2013 and November 2013, Bitcoin would 10x from $100 in mid-April to $1,000 just seven months later. Shortly thereafter, Bitcoin entered a huge bear market and lost 30% of its value in just one month. At it’s lowest, the 2014 bear market lost 80% of its value from the peak and wouldn’t recover until late 2015.
Unfortunately, this was coupled with one of the first times cryptocurrency faced regulatory challenges:
- Chinese institutions began cracking down on Bitcoin and prohibited monetary establishments from conducting crypto transactions.
- Mt. Gox, the now-defunct cryptocurrency exchange, also halted all withdrawals in early February 2014.
If you couple these unfortunate events with multiple breaches of hacked exchanges, like BitCash, Poloniex, Cryptsy, and MintPal, you’ll understand why investor sentiment around Bitcoin at the time was heavily negative.
Without as many brokerage services and trading platforms back then as we do today, security breaches and failed projects leave a larger hole in the ecosystem and result in even more violent bear markets.
From 2015 through 2018, Bitcoin holders enjoyed one of the most profitable bull markets to date. After taking two full years to recover to $1,000, Bitcoin would continue to grow to as high as $20,000 by the end of 2017.
Yet, the market’s triumphant $20,000 breakthrough was shortlived as Bitcoin once again dropped and lost more than 60% of its value over the next six months. Bitcoin would bottom at around $3,200 in December 2018 as the asset class continues to experience security issues and regulatory constrictions without support from more traditional institutions.
Facebook and Google had banned ads for ICOs and token sales, while the US SEC had rejected applications for BTC exchanges. Amid rumors of South Korea banning crypto trading and financial institutions consistently shedding cryptocurrency and the blockchain in a negative light, Bitcoin’s fallen value wouldn’t breach $20,000 again until 2 years later in 2020.
What do the previous Crypto Bear Markets have in common?
These two cycles are more similar than you think:
- Both bear markets lasted about 1 to 2 years.
- Both bear markets were linked to the downfall of a centralized player, not to the failure of a specific feature that the technology touted.
- Finally, both bear markets took place shortly after the Halving.
To provide context, the Halvening is an event that halves the block reward paid out to Bitcoin’s miners. The event takes place approximately every 210,000 mined blocks, roughly every four years. The first Bitcoin halving occurred in 2012, the second in 2016, the third in 2020, and the next is expected to occur in 2024. Historically, exponential price growth and a price pullback usually follow this event.
The 2022 bear market is of no surprise to anyone who’s been involved with crypto for a long time.
When 2022 crypto bear market will end?
That said, neither of these bear markets was preceded by massive media attention, celebrity endorsement, and institutional support.
Unlike Bitcoin’s 2018-2019 price rise, when institutions remained negative and skeptical towards the asset class, the market sentiment, this time around, was heavily positive. With publicly listed companies like Square and MicroStrategy betting on Bitcoin, the general masses slowly started filing in.
Does this bear market, even after receiving institutional support, mean that crypto will never be a mainstay in the global economy? It’s a possibility but also extremely unlikely.
Remember that 2022 is not just the year of the crypto winter, it’s the everything winter.
The stock market is down, housing prices are up, and the cost of living is rising as well. Nations, as a whole, are producing less and as a result, GDPs all over the world continue to drop.
It’s not just crypto.
Even then, as history has proven, a correction after a time of excessive greed is physiological and could even be a good thing for the long-term prospects of the blockchain. During bear cycles, founders, engineers, and crypto insiders could breathe a sigh of relief, knowing they’re no longer being scrutinized for every move they make. Instead, they could focus on building better technology and crafting smart strategies for the long term.
Scandals, failed projects, and inflation rising inflation has been the crypto story for 2022.
These negative storylines have only incentivized government officials to push for regulation of centralized players, such as exchanges. The removal of fraudulent and non-credible projects for more transparent and usable projects can only benefit the entire ecosystem.
Overall, the bear market should teach us the importance of financial education in all aspects. Whether you’re a crypto enthusiast, purely into equities, or somewhere in between, careful research and logical decision-making should be the pillars of every rational investor’s persona.
So far as investing in crypto projects goes, recent events have shown us to always double-check the projects we invest in and the people to whom we entrust our money, even the kindest faces could conceal a red flag.