Cryptocurrency bear market: signs, phases, and protection strategies

Any market, including the cryptocurrency market, is cyclical and characterized by periods of both growth and decline. Such trends can be local (short-term) or global and long-term.

What is a bear market?

A bear market is a period during which the prices of digital assets decline significantly. This period can last for several months or even years. A clear example is the crypto market downturn that lasted from November 2021 to October 2023.

Such a period is also called a bear trend. A bear market is characterized not by a short-term decline, but by a systemic, or fundamental, downturn, when the value of even the largest cryptocurrencies by market capitalization drops by 20% or more.

The concept of a "bear market" originated back in the 18th century, long before the emergence of cryptocurrencies and at the dawn of the stock market. There are several versions of how the term "bear market" appeared. However, the most common one is associated with the behavior of "bears" — traders who sell assets.

The term "bear" did not appear by chance: "bearish" traders are associated with this animal because they "strike downward with their paws," putting pressure on asset prices and driving them down. One of the earliest mentions of this term can be found in the books of the famous English publicist John Arbuthnot, where the author described the bear as the main antagonist of the character John Bull, depicted as a man with a bull's head.

Subsequently, these images began to be used in the stock market to describe the confrontation between opposing traders — "bulls" and "bears."

Phases of a bear market

It is believed that a bear market goes through four main phases.

The first phase of a bear market is called the "optimistic" phase. It is characterized by peak hype or strong oversold conditions*, which subsequently turn into a sharp decline in buyer interest.

* Oversold — a market condition in which assets are sold excessively actively and in large volumes, causing their price to fall significantly below levels considered justified from a fundamental or technical perspective.

At the moment when selling pressure begins to outweigh buying power, the second phase of the bear market begins — the decline. During this period, "bulls" can no longer restrain the forces of the bears, and cryptocurrency prices start to collapse. The following factors may exert additional pressure on the market:

• Internal: bankruptcies of crypto exchanges, collapses, and hacks of protocols. For example, the collapse of the Terra blockchain platform and the bankruptcy of the large exchange FTX in 2022 triggered a new wave of the bear market.
• External or macroeconomic: changes in the monetary policy of the U.S. Federal Reserve (Fed), data on U.S. markets, presidential election results, and recessions. These also include deregulation, changes in trade tariffs, and fiscal policy.

The decline itself may be intensified both by "natural" sales of investors' own assets on the spot market and by the opening of short positions (shorts) on the futures market, where traders bet on price decreases.

For example, in November 2021, when cryptocurrencies Bitcoin (BTC) and Ethereum (ETH) once again set all-time highs (ATHs), the total crypto market capitalization exceeded $3 trillion for the first time. However, by early 2023, this figure fell below $800 billion, a drop of more than 3.5 times.

Following the decline, the third phase of the bear market, known as the "speculative" phase, begins. During this period, short-term price spikes of digital assets are observed, but the overall trend remains bearish.

Finally, when prices have already fallen significantly and are in a strong oversold zone, they become more attractive to buyers. As a result, the decline slows, or the market stagnates, with cryptocurrency prices moving within a narrow range.

This phase of the bear market is also called the "slow decline." During this phase, buyers become increasingly active, and the market gradually turns "bullish," meaning rising. Such a trend reversal occurred in the crypto market in January 2023, when inflation rates in the U.S. declined, and major stock indices began to show positive dynamics.

How can an investor protect against a bear market?

Investment companies and professional traders use special strategies to protect against a bear market. One such strategy, for example, is hedging*.

* Hedging — an investment risk management strategy in which an investor opens additional positions or uses financial instruments (for example, derivatives) to offset potential losses from unfavorable price movements of core assets.

Another strategy to reduce risks from the onset of a bear market is portfolio diversification*, in which an investor holds different asset classes.

* Portfolio diversification — the distribution of investments among different assets (for example, cryptocurrencies, stocks, bonds, and commodities) so that a decline in the value of some assets is offset by more stable behavior of others.

An additional tool for protection against a bear market can be the use of stop losses in trading — price levels at which a trade is forcibly closed if the asset price falls.

Is the crypto market bearish at the end of 2025?

Some experts believe a bear market is already underway in the cryptocurrency sector. For example, the Bull Score index from CryptoQuant fell to zero for the first time since 2022, indicating the beginning of a bear market. An additional signal is the reduction in Bitcoin purchases by Strategy, the most significant Bitcoin investor among public companies.

The hypothesis of the beginning of a bear market is supported by Ledn's Chief Investment Officer, John Glover. According to the analyst, the bear market could last at least until the end of 2026, and the price of the leading cryptocurrency, Bitcoin, could fall to $70,000. Glover believes that the start of the bear market occurred when Bitcoin's price sharply declined from its all-time high of $126,000 to $104,000.

However, not all experts agree that a bear market has already begun. Some believe the current correction in the crypto market is local. For example, Trump's Bitcoin advisor, David Bailey, thinks a bear market may not occur for several years due to high institutional demand.

Meanwhile, Ryan McMillin, co-founder of the Australian company Merkle Tree Capital, stated that according to the base scenario, the peak of the crypto market will occur only in mid-2026. In his opinion, the bear market will begin only after the peak.