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Lessons from the Past Crypto Bear Markets

Lessons from the Past Crypto Bear Markets

The crypto market has been going through a brutal comedown since the beginning of this year. The total market capitalization of the crypto market has reduced to around $1 trillion, a significant drop from its $3 trillion valuation in November 2021, per TradingView. Bitcoin is down 70% from its all-time high value of $69,000 in 2021.


Many industry experts believe that there is a strong possibility of a prolonged bear market known as “crypto winter”. A similar situation occurred in the 2018 bear market. However, this latest crash is different from previous ones, because this cycle was triggered by a series of events that spread discord across the industry.

Bear markets make it difficult to execute profitable trades due to negative price action. However, industry experts and executives believe that while bear markets don’t look good on the surface, they are actually good for the crypto

industry. Experts suggest that bear markets eliminate speculators and scammers, which makes it easier to build real products and services.

Bear markets are healthy: Industry experts

According to CoinGecko, the total market capitalization has dropped by around 60% since last November. Cointelegraph anticipates that traders will experience more pain before the bear market is over, considering that the last bear market wiped away about 80% of the previous all-time high values before the market recovered.

Polygon co-founder Mihailo Bjelic told CNBC that the current downtrend and recent major sell-off in May 2022 were just what the market needed. He believes that the market became a bit irrational or reckless considering the significant growth of the market cap by 12.5 times from November 2019 to November 2021. Bjelic commented, “When times like that come, a correction is normally needed, and at the end of the day, it is healthy.”

Adding to the context, crypto market analyst, The DeFi Edge tweeted, “Bear markets are healthy for the growth of crypto. The dead weight gets removed and crypto can soar to new highs.” During a bear market, there will be fewer new market participants which are seen as potential targets by the scammers. The lower activity in a bear market means there is less opportunity for scammers to exploit newbies and make profits.

Trezor Bitcoin analyst Josef Tetek told Cointelegraph, “Bear markets are good for Bitcoin. Builders face fewer distractions, and the fake project founders that were only looking for a quick VC funding and naive retail […]disappear as quickly as they previously appeared.” Tetek further added saying, “Real builders rejoice when all the fake projects get washed out.”

Projects that flourished in the past bear markets

Despite the disadvantages that a bear market brings, it offers the best chance for reflection on previous investment strategies and other crypto-related decisions. A bear market is like a stress test that separates short-term hype from long-term value. Several projects, such as MakerDAO and Uniswap, emerged during previous bear markets and still remain successful projects.

The market needs to go through bear markets to grow and mature. In uncertain market conditions, the quality, stability, and security of crypto products and services become more important. Hence, only robust projects with reliable infrastructure will withstand bear markets. Let’s look at a few prominent crypto projects that were resilient in previous bear markets.

MakerDAO

MarkerDAO is one of the first and foremost projects that focused on decentralized finance, and has continued to be a major use case for the Ethereum blockchain. It is a crypto lending platform that allows users to generate their stablecoin DAI by leveraging collateral assets.

makerdao website
makerdao website

Even though MakerDAO was initially launched during the crypto market’s peak in December 2017, it has to endure the volatility of the crash. The managing partner of Dragonfly Capital, a venture capital firm that invested in MakerDAO and other top crypto projects, said, “one of the reasons why MakerDAO is so resilient is that it was born in this kind of environment.”

Uniswap

Uniswap is one of the most prominent decentralized exchanges developed on the Ethereum blockchain, and was the first platform to introduce the concept of an automated market maker. It launched in November 2018 and was followed by a huge crypto bear market.

uniswap website
uniswap website

Uniswap’s creator Hayden Adams believes that an open-source financial system is essential for a more equitable distribution of wealth. Despite having gone through the bear market, Uniswap has remained one of the best platforms and played a key role in the way trading orders are matched and executed.

OpenSea

OpenSea is another popular platform developed on the Ethereum blockchain. It launched in 2017, and its team remained focused on its fundamentals during the 2018 crypto winter. Today, OpenSea is the no.1 NFT marketplace, with millions of dollars of monthly sales volume.

uniswap website
uniswap website

When asked about surviving the 2018 bear market, OpenSea’s co-founder David Finzer told publications, “it was our willingness to be in the space for the long haul, regardless of the immediate growth trajectory.”

When everything is going well in a bull market, people spend a lot of money indiscriminately, and it is easy to believe that the momentum is sustainable. But in a bear market, people focus on what can truly give a competitive edge and solve real problems.

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