Key Points:
- The cryptocurrency market is transitioning into a bearish phase, marked by notable declines and stagnation, as per Coinbase Institutional.
- Bitcoin’s drop below its 200-day simple moving average (SMA) points to a forthcoming crypto winter.
- Traditional metrics for bear markets may not fully capture investors’ sentiment changes and market dynamics in the crypto sector.
The bullish momentum in the crypto market appears to have waned, leading it towards a prolonged winter of losses, according to Coinbase’s institutional division. “The recent drop of Bitcoin beneath the 200-day moving average indicates the beginning of a bear market cycle, starting in late March. Furthermore, analysis of the COIN50 index—covering the top 50 cryptocurrencies by market cap—underscores that this asset class has been in a bear phase since the end of February,” said David Duong, the global head of research at Coinbase Institutional, in a recently released report.
“This decline illustrates that investors have shifted their sentiment, suggesting a potential bear market in the crypto realm.” Translation: This decline illustrates that investors have shifted their sentiment, suggesting a potential bear market in the crypto realm.
Bitcoin fell below its 200-day moving average (SMA) on March 9 and has been unable to regain ground since. The 200-day SMA is a critical measure to identify long-term market trends, typically indicating a bullish scenario if prices stay above it.
Duong acknowledges the complexities of defining a bear market in crypto, where corrections of 20% or more frequently occur. Conversely, a 20% drop is often the benchmark for bear markets in traditional markets.
“We have seen that sell-offs can incite defensive changes in portfolios, even if they do not meet the conventional 20% drop threshold. Therefore, bear markets reflect fundamental shifts in the market structure, encompassing deteriorating fundamentals and decreased liquidity, rather than simply the percentage declines,” Duong emphasized.
To assess a crypto bear market, Duong also pointed out the importance of the risk-adjusted performance of Bitcoin using standard deviations (z-score) in relation to its yearly average performance. He indicated that their z-score model had flagged the end of the last bull cycle in late February, classifying subsequent actions as ’neutral,’ which may imply a delay in responding to rapidly evolving market changes.
Duong also forecasted that the crypto market might stabilize by mid-to-late Q2 2025, potentially setting the stage for a more favorable Q3.
For alternative cryptocurrencies, the upcoming winter could be even harder due to a downturn in venture capital funding, which remains significantly lower compared to the previous years.
