Original Article Title: Monthly Outlook: How Do You Define a Crypto Bear Market?

Original Article Author: David Duong, CFA - Global Head of Research

Original Article Translation: Daisy, ChainCatcher

Key Takeaways:

As of mid-April, the total cryptocurrency market cap excluding Bitcoin has dropped from its December 2024 peak of $1.6 trillion to $950 billion, representing a 41% decline. Additionally, venture capital funding has decreased by 50% to 60% compared to the 2021-2022 levels.

We believe a conservative risk management approach should be taken at this stage. However, we expect the cryptocurrency market prices to stabilize in the latter part of the second quarter of 2025, paving the way for a rebound in the third quarter.

Overview

Multiple factors are aligning that may herald the arrival of a new phase of the "crypto winter." With global tariff policies being rolled out and potentially escalated, market sentiment has significantly deteriorated. As of mid-April, the total cryptocurrency market cap excluding Bitcoin has dropped to $950 billion, a 41% decline from the peak of $1.6 trillion in December 2024, representing a 17% year-over-year decrease. Notably, this level is even lower than the market cap performance throughout almost the entire period from August 2021 to April 2022.

In the first quarter of 2025, venture capital investment in the crypto industry saw a slight recovery compared to the previous quarter but remains 50% to 60% lower than the peak levels seen from 2021 to 2022. This has significantly restricted new capital inflows into the ecosystem, particularly impacting the altcoin sector. The structural pressures mentioned above are mainly driven by the current macroeconomic uncertainties. Fiscal tightening and tariff policies continue to suppress traditional risk assets, leading to decision-making paralysis in investments. While the regulatory environment provides some support, the road to recovery for the crypto market remains challenging amidst the overall weakness in the stock market.

A combination of factors has put the digital asset market under severe cyclical pressure, requiring caution in the short term (expected for the next 4 to 6 weeks). However, we believe investors should adopt a flexible tactical approach to market fluctuations. Once market sentiment completes its repair, a rebound could quickly take off. We remain optimistic about the market performance in the latter half of 2025.

Bull Market and Bear Market Classification

In the stock market, a common rule of thumb to determine a bull market or bear market is a 20% rise from a recent low or a 20% decline from a high. However, this rule is essentially subjective and not applicable to the highly volatile crypto market. Cryptocurrency assets often experience price swings of over 20% in a short period, but this does not necessarily indicate a fundamental shift in market trends. Historical data shows that, for example, Bitcoin can fall 20% in a week but still be in a long-term uptrend, and vice versa.

Moreover, the crypto market trades 24/7, making it a global barometer of risk sentiment during off-hours in traditional financial markets (such as nights or weekends). Therefore, cryptocurrency prices often exhibit stronger reactions to global unexpected events. For instance, from January to November 2022 during the Federal Reserve's aggressive rate-hike policy, the U.S. stock market (represented by the S&P 500 Index) accumulated a 22% decline, while Bitcoin started falling earlier in November 2021 and saw a 76% cumulative decline in a similar period, roughly 3.5 times the stock market's decline during the same period.

The Truth in Contradictions

It is worth noting that the traditional "20% rule" used to define bull and bear markets is essentially a rule of thumb and lacks a unified standard. As Justice Potter Stewart of the U.S. Supreme Court remarked on defining obscenity, "I know it when I see it." Similarly, identifying market trends often relies more on experience and intuition than strict computational models.

Nevertheless, to make judgments more systematic, we refer to the S&P 500 Index's highs and lows over a rolling one-year window to identify key market reversals. Using this method, the U.S. stock market has roughly seen four bull markets and two bear markets in the past decade—excluding the latest downturn in late March to early April (our model has begun signaling a bear market). See Chart 1 for details.

However, this "20% threshold" also overlooks at least two significant pullback events that had a major impact on market sentiment but fell within the 10% to 20% range. For example, the volatility triggered by the late 2015 Chinese stock market turmoil and the market turbulence caused by the intensification of global trade tensions in 2018 (indicated by the Fed's Global Trade Policy Uncertainty Index). See Chart 2 for details.

In the past, we have seen that emotion-driven market declines often lead to defensive portfolio adjustments, even if the decline does not meet the artificially set 20% threshold. In other words, we believe that a bear market is fundamentally a reflection of a structural shift in the market, characterized by deteriorating fundamentals and liquidity contraction, rather than just a price decline. Additionally, the "20% rule" carries a complacency risk as it overlooks some early warning signs, such as weakening market depth and defensive sector rotations, which are often precursors to significant downward cycles in history.

Alternative Metrics

Therefore, we are trying to find alternative indicators that can more accurately reflect the relationship between price trends and investor psychology, applicable to both stocks and crypto assets. The definition of a bear market not only involves asset returns but is also closely related to market sentiment—often determining whether investors believe the downtrend will continue and adjust their strategies accordingly. This concept is rather complex because what we are observing is not a simple continuous uptrend or downtrend, but rather a turning point in a long-term trend. For example, the COVID-19 pandemic period is a typical case where the market experienced a rapid and sharp decline followed by a quick rebound. Of course, the reason why this bear market was short-lived was largely due to the large-scale fiscal and monetary stimulus policies subsequently introduced by various governments, preventing investors from experiencing a prolonged drawdown.

Instead of relying on rules of thumb like the "20% rule," we prefer to use two types of risk-adjusted indicators: (1) risk-adjusted return performance measured by standard deviation, and (2) the 200-day moving average (200DMA). For example, from November 2021 to November 2022, Bitcoin's performance compared to the previous 365 days' average declined by 1.4 standard deviations, while during the same period, the decline in the stock market also reached 1.3 standard deviations. From a risk-adjusted perspective, Bitcoin's 76% decline and the S&P 500 Index's 22% decline can be considered relatively equivalent in magnitude.

As the standard deviation metric can naturally reflect the high volatility of the crypto market, the z-score (standard score) is well-suited for crypto asset analysis. However, it also has certain limitations: on the one hand, the calculation is relatively complex, and on the other hand, it may provide fewer signals during periods of stable market trends, making its response to trend changes less sensitive. For example, our model shows that the recent bull market cycle ended in late February, and since then, the market state has been classified as "neutral," reflecting a potential lag in the model during periods of intense market volatility.

In contrast, the 200-day moving average (200DMA) offers a more concise and robust method to identify sustained market trends. Due to its calculation based on long-term data, it can effectively smooth out short-term fluctuations and adjust promptly based on the latest price trends, thus providing clearer momentum signals.

The judgment method is also relatively intuitive:

· When the price remains consistently above the 200DMA and is accompanied by upward momentum, it is usually considered a bull market;

· When the price remains well below the 200DMA for an extended period and is accompanied by downward momentum, it often signifies the formation of a bear market.

This method not only aligns with the "20% Rule" and the z-score model's reflection of general trend signals but also enhances the practicality and forward-looking nature of insights in a dynamic market environment. For example, it successfully captured key downward cycles such as the early stages of the 2020 pandemic, the 2022-2023 Fed tightening cycle, the crypto winter of 2018-2019, and the 2021 pullback triggered by China's mining ban.

In our view, this method not only aligns with the "20% Rule" and the z-score model's representation of general trend signals but also enhances the precision of extracting actionable insights in a dynamic market environment.

Furthermore, we have also found that the 200DMA better reflects the sharp fluctuations in investor sentiment across different periods. Refer to Charts 5 and 6 for details.

Crypto Winter?

So, have we entered a crypto bear market? Previous analyses have mainly focused on Bitcoin due to its sufficient historical data allowing for comparison with traditional markets like the U.S. stock market. However, as the crypto asset class continues to expand into emerging areas such as Meme coins, DeFi, DePIN, AI agents, etc., Bitcoin gradually no longer fully represents the overall market trend.

For instance, Bitcoin's 200DMA model shows that since late March, its sharp correction has entered bear market territory. Analyzing the COIN50 Index (covering the top 50 tokens by market cap) using the same model reveals that since late February, this asset class as a whole has been significantly in a bear market. This is consistent with a 41% drop in the total crypto market cap excluding Bitcoin from the December 2024 peak to $950 billion; in contrast, Bitcoin's decline during the same period is less than 20%. This difference reflects the higher volatility and risk premium of meme coins at the end of the risk curve.

Conclusion

As Bitcoin's "store of value" attribute continues to strengthen, we believe that a more systematic and comprehensive approach will be needed to assess the overall performance of the crypto market in the future, to more accurately define its bull or bear market status, especially in an increasingly diverse asset class context. Nonetheless, both Bitcoin and the COIN50 Index have breached their respective 200-day moving averages, a signal indicating that the market may be in the early stages of a long-term downtrend. This aligns with the trends of declining total market cap and shrinking venture capital investment, both key characteristics that a "crypto winter" may be approaching.

Therefore, we recommend that at this stage, a defensive risk management strategy should still be maintained. Although we still expect cryptocurrency prices to stabilize in the latter part of Q2 2025 and set the stage for improvement in Q3. Currently, the complex macroeconomic environment still requires investors to remain highly cautious.

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