Bear markets are a part of investing, especially in crypto. While the stock market was on a bull run for the most part until late last year, ever since the Great Recession, there have been a handful of periods when cryptocurrencies have gone through their own bear markets.
When this happens, it's called a crypto winter, and it isn't uncommon for the cryptocurrency market class to collectively fall by more than 60%. In fact, in the last crypto winter of 2018, the cryptocurrency asset class was decimated and lost more than 80% of its value.
Yet despite this extreme drop, the market recovered over the next three years and rose to new highs in 2021. From its 2018 bottom, the cryptocurrency market cap increased by more than 2,500% and notched a collective value of just under $3 billion.
One crypto CEO is hopeful that another similar situation might unfold. But a few things have to happen first.
Been there, done that
Ryan Selkis founded Messari, a cryptocurrency research and data analysis company, in 2013 when the asset class was in its infancy. The idea to create an easily accessible and intuitive platform for users to explore cryptocurrency charts and trends has helped the CEO become one of the industry's prominent figures.
As a seasoned veteran, Selkis has been through his fair share of crypto winters and bear markets. He believes this one is similar to others since it came after a period of rapid growth -- too much growth that happened too quickly.
Selkis thinks that a bit of turbulence in the market is healthy and necessary to spur the next bull market. When bear markets arrive, companies and blockchains that struggle to provide true utility inevitably go out of business. To ensure they can remain competitive, blockchains must either strategize anew or further develop their ultimate visions so they don't become obsolete.
As Selkis put it, the arrival of crypto winters helps "wash away all the dead wood" and create room for new competitors. He further elaborated that "bear markets are good for getting the right people in the room" so that they can help lead another wave of growth and innovation.
If the current crypto winter is similar to those of the past, investors should plan on a few things.
Lessons to be learned
First, not every cryptocurrency around today will make it to the next bull market -- should one arrive. When looking at the top 10 cryptocurrencies by market cap from June 2018, arguably the middle of the last crypto winter, only four are still in the top 10 today.
The natural process of succession eliminates blockchains that fail to evolve and provide necessary utility. Investors should prioritize holding cryptocurrencies such as Bitcoin (BTC -4.67%) or Ethereum (ETH -4.08%), which are built for the long haul, have a proven track record, and aren't part of some short-lived trend.
In addition, if past bear markets can tell us anything, recoveries are a drawn-out process. It took nearly three years for the cryptocurrency market to peak from its dismal low in December 2018. We aren't even a year into the current crypto winter, but that shouldn't be cause for concern.
Instead, investors should use this time to build up their positions and remain consistent in their allocations. If the past is any indication of the future, then a bull market should return. Of course, nothing can be accounted for with certainty. Still, the growing trend of blockchains and cryptocurrencies permeating into business models of companies and people's daily lives is difficult to ignore.
While the technology continues to evolve, an investment in specific cryptocurrencies fostering innovation could be of immense value if the market starts to recover. Keep the big picture in focus and stay consistent. Prioritizing your investments in blockchains that provide true utility is the best way to position your portfolio for success should this crypto winter thaw.
