The crypto market peaked near $3 trillion last November, then abruptly reversed course as economic uncertainty led many investors to unload risky assets. That spark became a wildfire as the initial losses forced the liquidation of heavily leveraged crypto positions (investments funded with debt), which translated into even greater losses.
Unfortunately, risky bets were not limited to retail traders. Crypto lender Celsius often paid double-digit interest rates on Bitcoin (BTC -3.11%) and Ethereum deposits, then lent those assets to other entities to earn a return. In mid-June, Celsius froze withdrawals as the crypto market plunged, amplifying fear in an already unstable environment.
Additionally, the crypto industry is still feeling aftershocks from the collapse of the Terra blockchain, an event that erased $60 billion and left a once-esteemed ecosystem worthless. Crypto hedge Three Arrows Capital, which had invested heavily in Luna, was recently ordered to liquidate its assets after failing to repay loans. One of its creditors, crypto brokerage Voyager Digital, recently suspended trading and withdrawals due to liquidity problems fueled by Three Arrows' default.
That domino effect is still in motion, but the crypto market has already fallen 71% from its high, sending $2 trillion up in smoke. How much longer will the crypto crash last?
A brief history of crypto winters
The crypto market has fallen by 50% or more on four different occasions, including the current downturn. However, Bitcoin consistently accounted for more than 95% of the crypto market until 2013, meaning the first crypto winter could more accurately be called a Bitcoin winter. Regardless, investors can learn something by examining those events.
The first major crash started in June 2011. Bitcoin lost 93% of its value before bottoming out in November 2011, roughly 162 days later. But Bitcoin didn't hit a new high until March 2013, roughly 631 days after the downturn started.
The second major crash started in December 2013. The crypto market lost 81% of its value before bottoming out in January 2015, roughly 406 days later. But the market didn't hit a new high until December 2016, roughly 1,114 days after the downturn started.
The third major crash started in January 2018. Dozens of altcoins had gained popularity by that time, so this event may be the most relevant. The crypto market fell 88% before bottoming out in December 2018, roughly 342 days later. But the market didn't hit a new high until January 2021, roughly 1,091 days after the downturn started.
It could be a while
When you reconcile those three crypto winters, the average time to bottom was 303 days, the average drop was 87%, and the average time to new-high was 945 days.
For context, the crypto market last peaked on Nov. 10, 2021, which was 235 days ago at the time this article was written. So if the current crypto crash falls precisely in line with the average, we are 68 days away from the bottom and 710 days away from a new high. Of course, each individual downturn is precipitated by different circumstances, and it's impossible to accurately forecast the end of any market crash.
Additionally, three data points is hardly a reliable number, but that's one of the risks. Cryptocurrency is a relatively new asset class, meaning investors have to navigated uncharted waters. There is no guarantee the crypto market will ever recover, but for risk-tolerant investors looking to capitalize on the downturn, Bitcoin and Ethereum are backed by a compelling investment thesis.