A market correction is a short-term price pullback after the price has risen too quickly.
A market correction is a sharp but short-lived price drop in response to an overbought or overvalued market. In other words, “rolling back” from recent highs allows the market to digest the gains and reset to another higher point.
Generally, when the market drops 10% or more after breaking out of its recent high, it is considered a market correction. However, the 10% figure is not a strict rule. Some corrections down 3%; Others can drop by up to 20%. Market retracements of 5% to 10% are more common in cryptocurrencies.
Corrections almost always occur when the economy expands, as investors become overconfident and drive asset prices too high, paving the way for a “back to average” as corrections bring prices back to more realistic levels.
How often do market corrections occur?
Stock market corrections usually happen every two years, but since the cryptocurrency market is more volatile, price corrections tend to happen more frequently.
There is no set timeline for cryptocurrency market corrections. As such, price corrections can occur in days, weeks or months. Occasionally, cryptocurrency market corrections can happen in a matter of hours.
Cryptocurrency prices are affected by many factors – all of which contribute to the volatility of the market in general. Thus, it can be difficult to determine the exact time frame for a market correction.
What causes market corrections in cryptocurrency?
Several reasons can trigger a market correction in cryptocurrencies, such as excited investors, regulatory uncertainty, or market-wide selling.
Some of the more common triggers include:
Excessive speculation and investor glut: When investors are too excited about a particular asset, they tend to push prices too high, too quickly, which can create an unsustainable bubble that eventually pops, leading to a market correction.
FOMO (Fear of Missing): When investors see prices rising quickly, they may jump into the market without proper research, creating a self-fulfilling prophecy where prices keep increasing just because more people are buying.
Exchanges hacked: If a major exchange gets hacked and loses a significant amount of investor money, it can lead to a sell-off and a correction throughout the market.
Regulatory uncertainty: Anytime there is regulatory uncertainty surrounding a cryptocurrency, it can lead to a sell-off and a correction. For example, prices fell sharply when China announced that it was cracking down on cryptocurrency in 2017.
What is cryptocurrency decline?
Pullbacks are slightly different from corrections, which are pauses or reversals in the direction of the overall value of the asset.
In crypto, pullbacks are relatively common and can happen multiple times during an uptrend or downtrend. Pullbacks are generally a healthy part of the market cycle because they allow the market to digest gains (or losses) and reset before moving up (or down).
Cryptocurrency withdrawals mean that the temporary reversal will stop, increase or decrease in value for a short period, after which the value of the asset will return to its original behavior.
What is a bear market in cryptocurrency?
A bear market is a prolonged period of low prices, usually accompanied by widespread pessimism.
In other words, it’s a lot like a market correction, but it lasts a long time. For a market to be considered a bear market, prices must be down 20% or more from their recent highs. Just like market corrections, this number is not static and can vary according to market conditions.
Unlike market corrections that occur during times of economic growth, bear markets usually occur when there is an economic recession or a stock market crash. A bear market in a cryptocurrency could be caused by any of the same factors that lead to a market correction. However, it can also be caused by other factors, such as political unrest or natural disasters.
How long can a bear market last?
The duration of a bear market can vary greatly. Some bear markets last only a few months, while others last for years.
There were 14 bear markets in the United States from 1947 to 2022. In general, the average bear market length can range from one month to 1.7 years, according to Investopedia.
Globally, bear markets tend to last for an average of ten months, plus or minus. However, there were a few cases where bear markets lasted longer. For example, the “Crypto Winter” crash from 2013 to 2015 lasted 415 days, or just over a year.
How to Build in a Bear Market for Cryptocurrency?
Can you make profits in a bear market? The answer is yes. Just as there are strategies for investing in a bull market (a period of high prices), there are strategies for investing in a bear market as well.
Some common strategies include:
Short Selling: This is when investors sell an asset they don’t own and hope to buy it back at a lower price