It's hard to imagine that just a year ago, many notable cryptocurrencies like Bitcoin (BTC +0.91%) and Ethereum (ETH 0.20%) hit new all-time highs. In November 2021 the most valuable cryptocurrency, Bitcoin, peaked at around $67,000. Meanwhile, the second-most valuable cryptocurrency, Ethereum, notched an all-time just shy of $4,900. That month, the market cap of the cryptocurrency asset class reached a collective value of over $2.8 trillion, a new record. But since then, Bitcoin and Ethereum are both down nearly 65% from their highs and the total crypto market cap sits at just over $1 trillion, a fraction of what it once was.
After this kind of obliteration, concerns are likely warranted. If you're a new crypto investor, this is likely your first time witnessing a price decline of this magnitude. Welcome to crypto.
The overall trajectory of cryptocurrencies has climbed over the past decade. Still, it seemed all hope might just be lost in some brutal stretches. Let's take a look at some of those rough patches to put the current one into a little better context.
CRYPTO: BTC
Key Data Points
Seasons come and go
One of the first crypto bear markets occurred throughout most of 2014 and 2015. After the asset class hit a new market cap all-time high of more than $15.5 billion in December 2013, a slow descent ensued over the next two years and bottomed around $3.7 billion in May 2015, a 75% decrease. During that same period, Bitcoin lost 80% of its value and went from around $1,100 to just a few hundred dollars.
Yet prices returned to new highs by January 2018. The total crypto market cap reached more than $827 billion and Bitcoin hit a price of almost $20,000, jumps of 22,000% and 9,400% respectively.
Those highs were short-lived like many market tops and a crypto winter gripped the market for all of 2018. After finding a bottom around January 2019, the crypto market cap had shed 80% of its value and fallen to just over $100 billion. In a similar fashion, Bitcoin lost more than three-quarters of its value.
But by November 2021, those woes of 2018 were all but forgotten. In a matter of about two and a half years, the crypto asset class hit a new all-time high of around $2.8 trillion and Bitcoin reached more than $67,000.
Crypto investors now find themselves in a similar situation to years past. Since that peak the crypto market cap has lost more than half of its value and Bitcoin is down nearly two-thirds from where it once was.
The point is, crypto has been here and done that. Not just once, but three times. And each past decimation has been followed by a considerable rally.
Lessons to be learned
Investors shouldn't act with certainty and think that just because it happened once it will happen again, but they can use data to make informed decisions. And the data shows that historically, investors have the most to gain when crypto and Bitcoin lose around two-thirds of their value. In addition, the data shows that the return to new highs is not an overnight process. Nor will it happen in a year. It usually takes about two to three years before new highs are made. This isn't to give you a sense of false hope but rather serve as advice to keep a long time horizon.
Hindsight is always 20/20, but imagine if you invested at the absolute bottom of each one of these past bear markets. A $1,000 investment in Bitcoin when it was worth just a few hundred dollars in 2015 would have been worth more than $90,000 by 2018. A similar $1,000 investment at the 2019 market bottom, when Bitcoin was worth just over $3,200, would have grown to around $20,000 by November 2021.
Investors today need to keep a few things in mind when navigating these tumultuous times. First, maintain a broad time horizon. The true winners of this bear market will be the ones who plan on holding for at least three years and ideally even longer.
Second, prioritizing cryptocurrencies with a solid track record is a proven strategy to minimize risk and maximize potential. It isn't unheard of for a cryptocurrency to be here today and not make it to tomorrow. Investing in "blue chip" cryptocurrencies like Bitcoin and Ethereum is most recommended since they account for more than half of the value in the entire crypto market.
Finally, consistency is key. Ensuring that you continue to gain exposure by investing regardless of the price is the best way to maximize your potential profits should prices return to new highs. Ignore the day-to-day and week-to-week price fluctuations. Remember, bull markets make you money, but taking advantage of bear markets can make you rich.
