China’s recent crackdown on cryptocurrency may be the main cause of Bitcoin hitting its all-time low last month. Despite this not being China’s first foray against digital currency, it did come quite soon after Tesla CEO Elon Musk announced the company would no longer be accepting Bitcoin as payment. The horrid timing of the two events – plus a few other inconveniences – has incited chaos in the market.
Experts state that we’re now in the “worst crypto winter on record.” However, a few other investors claim Bitcoin is in a bear market, and they advise fellow investors and traders to act accordingly.
So, which is it? And what’s the difference?
What is a Bear Market?
A bear market refers to a period when the price of a financial asset continuously decreases. Most financial platforms agree that a price decrease of 20% or more can be considered “bearish.” A bear market is often characterized by pessimism and irrationality, consequently resulting in further price drops (due to bad trades or strategies made due to panic). Bear markets can last anywhere from several weeks to several months. In fact, a secular bear market can last as long as 20 years.
What is a Crypto Winter?
In the crypto space, the term “winter” refers to a season where stocks and currencies are frozen or no longer “hot.” They’re no longer interesting, in-demand, or seen as a valuable commodity. A Crypto Winter happens when the value of an asset is pretty much stagnant—neither rising nor dropping, just completely frozen.
A crypto winter typically happens between each crypto bull cycle, when the initial excitement of the price peaking finally dies down. When the market begins to show signs of life again (i.e., prices rising, assets being purchased, active trading), that’s referred to as a “crypto spring.”
I. Crypto Winter 2018
From January 2018 all the way to September, rumors of South Korea’s potential crypto ban initiated the ten-month-long freeze. Following the rumors were a string of unfortunate circumstances for the crypto market. Compromised Binance API keys were misused, Japan’s largest crypto OTC market was hacked, and social media platforms like Facebook and Twitter banned advertisements of ICOs and token sales.
That year, cryptocurrencies collapsed by roughly 80%.
II. Crypto Winter 2021
People believe we’re in the middle of a crypto winter, and they pinpoint the start of it as May 19, 2021. Bitcoin dropped 30%, Ether 40%, and Dogecoin 45%. This was kicked off by, once again, a series of unfortunate events. Elon Musk announcing Tesla would no longer accept Bitcoin, anti-crypto announcements from the People’s Bank of China, an informal order from the Reserve Bank of India dissuading crypto exchanges, and the beginnings of regulatory action against Binance.
We’re going to preface this by saying that the difference between the two lies purely in timing. Both terms are used to describe low points or declining spaces in the market. Any other differences between the two are purely technical.
A bear market is used when the drop in an asset’s value is ongoing. A crypto winter happens when the drop has tapered off and the price is no longer moving enough to make a difference. It helps to think of the definition of “crypto winter”—particularly how the market is frozen during this time.
If the trend shows a flat line (more horizontal than angled, few blips in between), it’s a crypto winter. If the trend shows a continuous, downward line (regardless of how steep), it’s a bear market.
In May 2021, Bitcoin dropped 25% from its peak of $64,829—easily meeting the criteria for a bear market. It continues to fluctuate but if the price tapers off and doesn’t climb back up for a while, then we’ll have entered a crypto winter.
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