Crypto enthusiasts may have to buckle up as the much-anticipated bull run seems to be coming to an end, giving way to a lengthy ‘crypto winter.’ This projection comes from Coinbase’s institutional arm, which envisages a prolonged phase of downturns and sluggishness in the crypto market. According to the company, the 200DMA (200 Day Moving Average) model on Bitcoin validates this prediction, suggesting that this fall could be a start of a bear market cycle that commenced in late March.
Evidence in Market Trends
The signs are all around us. Take a look at the COIN50 index, which represents the top 50 tokens by market capitalization. It clearly indicates that the digital asset class has been unhappily living in bear market territory since February’s end, according to David Duong, the global head of research at Coinbase Institutional.
However, unraveling the complexities of a crypto bear market is no easy task. Unlike the stock market where a 20% decline typically defines a bear market, crypto markets often experience routine corrections of 20% or more.
Beyond the 20% Itch
The 20% benchmark is arbitrary and often fails to take into account the impact on investor sentiments. In fact, smaller, more intense sell-offs can also trigger defensive portfolio adjustments. Duong points out that these sentiments-driven declines can incite fiscal readjustments, even if they don’t meet the 20% criteria. In essence, he believes that the crypto bear markets represent a change in market structure—identified by deteriorating fundamentals and depleting liquidity—rather than mere percentage declines.
The Intricacies of Crypto Bear Markets
Moving beyond the 200-day SMA, Duong points out another crucial element for identifying crypto bear markets – Bitcoin’s risk-adjusted performance. Measured in standard deviations (z-score), it’s the relative performance to the average performance over the previous 365 days.
The model shows that the recent bull cycle halted by late February. However, it deems all subsequent activities as neutral, indicating a potential lag in rapidly evolving market conditions.
Bitcoin vs. Altcoins
While Bitcoin has claimed new peaks at the start of the year, it wasn’t enough to ignite more risk-taking ventures in the VC space. Consequently, the overall funding is now 50%-60% lower than the 2021-22 levels. As a result, the impact of the upcoming winter could be harsher for alternative cryptocurrencies that heavily rely on venture capital (VC) funding.
Predictions for the Near Future
All is not gloom and doom, however. According to Duong, the crypto market might find its footing again by the middle or latter part of the second quarter of 2025. This easing of the market could set the stage for a better third quarter of 2025.
In conclusion, the market is expected to go through a series of highs and lows. Investors need to remain vigilant, adapt to the changing market dynamics, and make informed decisions based on carefully analyzed data and trends.
