Case Study: Is Bear Market Of 2022 The Worst We’ve Seen So Far?

Since the beginning of 2022, cryptocurrencies have suffered a brutal comedown, losing $2 trillion in value after a massive rally in 2021. 

The global cryptocurrency market capitalization today is $1.06 trillion, almost a -40% change one year ago. Overall crypto trading volumes fell from nearly $500 billion in May 2021 to almost $200 billion in December 2022.

The two most popular cryptocurrencies are also struggling: Bitcoin plummeted by 70% from its highest peak of $64,000 in 2021, while Ethereum lost two thirds of its value since its all-time-high of nearly $3500.

Why is this bear market different?

The crypto and DeFi market with multiple firms, exchanges, dApps, trading platforms and other business has become as interconnected as ever. That’s why, in 2022 we witnessed a series of interrelated events, when one crisis affected the rest of the market.

One of the most bright examples is FTX: its bankruptcy dragged down crypto prices and operations of many crypto and NFT firms that had connections with this exchange, once second largest in the world. Among the exposed companies — BlockFi, Gemini, Kraken, and even Binance, which suffered reputational and financial losses.

Also, this bear market is notable for the destabilization of… stablecoins. The 2022 year was a collapse for TerraUSD (UST), an algorithmic stablecoin which was supposed to be pegged one-to-one with the US dollar, but lost its peg, bringing down its sister token LUNA. This sent shockwaves through the stablecoin industry, and made investors doubt whether other fiat-pegged coins could collapse too. 

How was it during the previous crypto winter?

The last prolonged bear market occurred between 2017 and 2018, when Bitcoin and other cryptocurrencies slumped sharply after a steep climb. In the end of 2017, the dominant cryptocurrency reached its first all-time-high (nearly $20,000), but lost most of its value during the next several months.

The crypto market then was awash with initial coin offerings (ICO), a type of crowdfunding that wears a negative label to this day. Investors poured money into multiple crypto ventures that were literally everywhere, but the vast majority of those projects ended up failing.

Most experts agree that the 2017-2018 crash happened largely due to the overhype around crypto. At that time, few people realized the importance of checking projects or at least reading their whitepaper, if there were any, becoming an easy prey for scammers. Luckily, the situation is completely different today.

Can this crypto winter be the last?

The crypto market of 2022-2023 is much more rapid and flexible than a few years ago. And has more investors’ trust as well. While major cryptocurrencies are having hard times, smaller coins like XRP, Polkadot and BNB are on the rise. We also have the NFTs, which are gaining more and more attention from big companies like Nike, Adidas and Starbucks, and can serve as a good tool to diversify your portfolio.

It’s not that bad with Bitcoin, too: in the beginning of 2023, BTC’s price has crossed the psychological mark of $20,000 and is slowly growing to $23,000. Hopefully, this crypto winter will be not as cold as the previous one, and traders will use this experience to develop some useful strategies for the next bear markets.