Crypto Assets Market: Is the Bear Market Coming or Just Short-term Fluctuation?

Recently, the crypto assets market has experienced a significant adjustment. As of mid-April, the total market capitalization of crypto assets, excluding Bitcoin, has dropped from the peak of $1.6 trillion in December last year to $950 billion, a decline of 41%. Meanwhile, the scale of industry venture capital has also shrunk by 50%-60% compared to the peak years in previous years. Do these signs indicate that a new round of "crypto winter" is about to arrive? This article will explore multiple perspectives on how to define the bull and bear cycles of crypto assets.

Market Status Analysis

Current multiple factors are superimposed, putting pressure on the crypto market. The tightening of global tariff policies and the increasing uncertainty in the macro economy have undermined investor confidence. Although the regulatory environment has improved, the crypto market still faces challenges in the short term against the backdrop of weak performance in overall risk assets.

It is worth noting that the total market value of crypto assets, excluding Bitcoin, has fallen below the levels seen from August 2021 to April 2022. This phenomenon highlights the existence of structural pressures in the market.

How to Define the Bull and Bear Markets of Crypto Assets?

Traditional stock markets often use the "20% rule" to determine bull and bear markets, where a rise of 20% from a low point is considered a bull market, and a drop of 20% from a high point is regarded as a bear market. However, this standard does not apply to the more volatile crypto market. Crypto assets frequently experience fluctuations of over 20% in a short period, but this does not necessarily indicate a change in the long-term trend.

In addition, the all-weather trading characteristics of the encryption market often lead to a more intense reaction to global emergencies. For example, during the aggressive interest rate hikes by the Federal Reserve in 2022, Bitcoin's decline was approximately 3.5 times that of the S&P 500 index.

Looking for More Suitable Indicators

To better grasp market trends, we propose two alternative indicators:

1. Risk-adjusted return performance (measured by standard deviation)
2. 200-day Moving Average (200DMA)

Risk-adjusted metrics can better reflect the high Fluctuation characteristics of Crypto Assets. For example, from November 2021 to November 2022, Bitcoin's performance relative to the average over the previous 365 days decreased by 1.4 standard deviations, comparable in magnitude to the S&P 500 Index's decline of 1.3 standard deviations.

The 200-day moving average provides a simple and effective way to identify persistent market trends. When prices remain above the 200DMA for a long time and show an upward trend, it is typically considered a Bull Market; conversely, it may indicate the formation of a Bear Market. This method not only aligns with other indicators but also better reflects changes in investor sentiment.

Current Market Condition Assessment

From the perspective of Bitcoin, the 200DMA model shows that it has entered a Bear Market zone since late March. An analysis of the COIN50 index for the top 50 tokens by market capitalization reveals that it has been in a significant Bear Market state since the end of February. This aligns with the trend of a substantial decline in the total market capitalization of Crypto Assets excluding Bitcoin, reflecting that small-cap tokens face greater pressure.

Conclusion and Outlook

Looking at the various indicators, the crypto market may be in the early stages of a long-term downtrend. The decline in total market value and the contraction of venture capital are important signals that the "crypto winter" may be approaching.

Therefore, in the short term (expected to be 4-6 weeks), investors still need to remain cautious. However, we expect the market to stabilize in the late second quarter of 2025, laying the foundation for a rebound in the second half of the year. Before that, it is recommended to adopt flexible risk management strategies and closely monitor market changes.