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Bear market is a term used in the crypto space to describe a general market crash, typically when the market has lost more than 20% of its value. That said, most signs of an impending bearish market are not always so clear at the onset. 

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Although volatility is nothing new in the industry, the cryptocurrency market is currently experiencing severe difficulties. Bitcoin is down more than 60% from its all-time high, and Ether is down more than 65% from its peak price. The rapid fall of $LUNA also contributed to the crypto market slump, as nearly $50 billion was wiped off the market cap in less than two days. Fear and uncertainty in the sector are currently at an all-time high, with the Fear and Greed Index displaying extreme fear and with most altcoins down at least 40% from their all-time highs.

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Right now, nobody knows for sure when the market will completely recover. However, it’s also worth noting that there are stages of a crypto bear market, and the best bet right now is to study them to see where the market is currently, and to better job of discernment when it starts to recover. Blockworks' Jason Yanowitz recently [tweeted](https://twitter.com/JasonYanowitz/status/1536365741363982336) what he sees as the three stages of a crypto bear market, with the market currently in the second stage of a downturn.

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## The Stages of a Crypto Bear Market 

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### **First stage: the unwind**

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 ![](https://cdn.hackernoon.com/images/q27cDSxmZpZjEf6z4gZc4ZBrLvw1-nh93q96.png)

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At this stage, there’s still excitement and FOMO from crypto bull market participants. The first stage doesn’t feel like a bear market, and a lot of investors would probably be in denial of any impending crash, despite warnings from some quarters. Everything seems alright, and the HODL narrative would be very strong. Interestingly, in discussing the origin of the term HODL in 2013, Bitcointalk forum user GameKyuubi, who coined the term, concluded that the best course was to hold since "You only sell in a bear market if you are a good day trader or an illusioned noob. The people in between hold. In a zero-sum game such as this, traders can only take your money if you sell."

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### **Second stage: forced capitulation**

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 ![](https://cdn.hackernoon.com/images/q27cDSxmZpZjEf6z4gZc4ZBrLvw1-taa3qsh.png)

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### **Third Stage: bottomless exhaustion**

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 ![](https://cdn.hackernoon.com/images/q27cDSxmZpZjEf6z4gZc4ZBrLvw1-q6b3qn7.png)

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If you look at the second stage, precipitated by the $50 billion Luna collapse, you'll notice that there are a lot of liquidations as "diamond hands become forced sellers. They sell not because they want to, but because they have to," to quote Yanowitz. 

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A few weeks before the Luna collapse, Michael Saylor, CEO of MicroStrategy, purchased $191 million Bitcoin taking the company holdings to 129,218 BTC. But despite the value crashing to $2.59 billion, a loss of around $1.5 billion, Saylor bought another 480 BTC in May and June, as recent filings with the SEC confirm. MicroStrategy has spent a total of $3.98 billion on this crypto asset at an average cost of $30,664 per Bitcoin. "The company's stock has fallen by 72.57% over the past 12 months — and spookily, BTC is currently trading at a 71% discount from all-time highs that were set last November," [confirmed](https://coinmarketcap.com/alexandria/article/microstrategy-still-buying-bitcoin-at-20-000-documents-reveal) Connor Sephton for CoinMarketCap.

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 ![](https://cdn.hackernoon.com/images/q27cDSxmZpZjEf6z4gZc4ZBrLvw1-muc3q73.png)

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*Billy Markus, co-founder of Dogecoin, [tweeting](https://twitter.com/BillyM2k/status/1542298372110815233) about the crypto bear market*

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Another market crisis that typifies stage two of the current bear market is the Celsius situation- after withdrawals were halted due to the platform's current liquidity issues. “Celsius Network hasn't offered an update to its community since June 20, when it warned affected users that it will take time to stabilize its operations,” it was [confirmed](https://coinmarketcap.com/alexandria/article/celsius-network-tells-users-they-ve-earned-weekly-rewards-but-withdrawals-still-suspended). 

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To avoid liquidation, Celsius has been putting up more collateral as the price of Bitcoin falls. It's reported that when Luna fell, Celsius pulled more than $535 million in crypto assets from Anchor, according to public blockchain data. 

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"Unlike banks, Celsius promises retail customers huge returns, sometimes as much as 18.6% annually. The lure of big profits has led individual investors to pour assets into Celsius and platforms like it," according to a report in Reuters. 

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In October Celsius had $25 billion in assets, although that had fallen to around $11.8 billion last month. And now there’s news that FTX, which was looking at making a deal with Celsius, has walked away due to the state of its finances. “Celsius had a $2 billion hole in its balance sheet,” [according](https://www.theblock.co/post/155069/ftx-walked-away-from-celsius-deal?utm_source=cryptopanic&utm_medium=rss) to a source quoted by The Block.

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 ![](https://cdn.hackernoon.com/images/q27cDSxmZpZjEf6z4gZc4ZBrLvw1-s5d3qyr.png)

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*[Tweet](https://twitter.com/BlockchainAndy/status/1542529708931383296) regarding Celsius on June 30 from @BlockchainAndy*

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With Bitcoin nearing its worst monthly losses since 2011 and BTC price at $19K, it's not surprising that the market sentiment is still saturated by fear and anger; in other words, the market is still far from stage three of the crypto market, typified by "bottomless exhaustion" where "max exhaustion" replaces "max pain" to quote Yanowitz. 

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Indeed, in a report on June 29, [Deutsche Bank argued](https://uk.finance.yahoo.com/news/deutsche-bank-crypto-freefall-could-122931355.html) that the crypto market prices are unlikely to stabilize as there are no “common valuation models like those within the public equity system”. The market is also highly fragmented, it added. While the bank said that Bitcoin could touch $28,000 by the end of the year, it also warned that "speculative trades are likely to involve the simultaneous use of several coins, which increases spillover effects, the bank said. 

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Whatever liquidity might exist in these markets could quickly evaporate, which would erode confidence in prices and increase the likelihood of contagion." Any macro shock could test the recent lows in cryptocurrencies prices and “reignite contagion risks in the DeFi ecosystem, the report added. It appears then we are stuck in stage two of crypto winter for many months to come, dependent on wider stability in the crypto and wider markets.

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