Key takeaways

Several converging signals may be pointing to the start of a new “crypto winter” as some extreme negative sentiment has set in due to the onset of global tariffs and the potential for further escalations. The total crypto market cap (excluding BTC) now stands at $950B, a steep 41% decline from its December 2024 high of $1.6T and 17% below levels from the same period last year. To put this into perspective, it’s even lower than almost the entire period from August 2021 through April 2022.

Simultaneously, venture capital funding in crypto picked up in 1Q25 from the previous quarter, but it's still down 50-60% from the levels observed during the peak of the 2021-22 cycle. This significantly limits the onboarding of new capital into the ecosystem, particularly on the altcoin side. All of these structural pressures stem from the uncertainty of the broader macro environment, where traditional risk assets have faced sustained headwinds from fiscal tightening and tariff policies, contributing to the paralysis in investment decision making. With equities struggling, the path to recovery for crypto remains challenging even with the idiosyncratic tailwinds from the regulatory environment.

The interplay of these factors paints a difficult cyclical outlook for the digital asset space, which may continue to warrant caution in the very short-term - perhaps through the next 4-6 weeks. However, we also believe investors need to take a tactical approach to markets because we expect that when the sentiment finally resets, it’s likely to happen rather quickly and we remain constructive for the second half of 2025.

Bull vs bear markets

A commonly cited threshold for defining bull and bear markets in equities is a move of 20% or more from a recent market low or high, respectively. That figure is somewhat arbitrary and certainly less applicable to crypto markets, which routinely experience 20% price swings in short periods that don't necessarily signal true changes in the market regime. That is, historical data shows that cryptocurrencies like bitcoin can drop 20% in a week but still trade within a broader uptrend, or vice versa.

Moreover, crypto trades 24/7, which means it often acts as a proxy for broader risk sentiment during those hours when traditional markets are closed (e.g. evenings and weekends). That can amplify crypto price reactions to external events globally. For example, US equities (proxied by the S&P 500) experienced a 22% decline between January and November 2022 during the Federal Reserve’s (rather aggressive) rate hiking cycle. Comparatively, the fall in bitcoin prices – which arguably started earlier (November 2021) – culminated in a decline of 76% over a similar period, a magnitude nearly 3.5 times greater than the sell-off in stocks.

Truth in contradictions

One of the first things to note about the traditional 20% metric for bull and bear markets in stocks is that there is no universally accepted definition for what is (at best) a rule-of-thumb. Much like Supreme Court Justice Potter Stewart's candid remark about obscenity (“I know it when I see it”), identifying market trends often relies on intuition and experience rather than rigid formulas.

Still, in an effort to formalize this measure, we analyze the market highs and lows for the S&P 500 within a rolling one-year window of closing prices to pinpoint major reversals. Over the last ten years, this metric suggests that there have been around four bull markets and two bear markets in US equities – not including the latest sell-off in late March and early April (where our model recently started flashing a bear signal). See Chart 1.

Yet, this threshold overlooks at least two significant 10-20% drawdowns that dramatically impacted market sentiment over the last ten years, such as the volatility spikes in late 2015 (China’s stock market turbulence) and 2018 (global trade concerns, as measured by the Fed’s gauge of global trade policy uncertainty). See Chart 2.

We’ve seen in the past that sentiment-driven declines can often trigger defensive portfolio adjustments, despite not meeting the arbitrary 20% threshold. In other words, we believe that bear markets fundamentally represent regime shifts in market structure – characterized by deteriorating fundamentals and shrinking liquidity – rather than just their percentage declines. Moreover, the “20% rule” risks complacency by ignoring early warning signs like narrowing market depth and defensive sector rotation, which historically precede major downturns.

Alternative metrics

Thus, we look for alternative metrics that can better capture the nuanced interplay between price movements and investor psychology – for both stocks and crypto. Bear markets are as much about sentiment as they are about the actual return, because that tends to determine the sustainability of performance declines that investors are looking to avoid. This can be a tricky concept because while we’re looking for the turnaround in longer-term trends, these don’t necessarily need to be prolonged periods of up or down moves. The COVID-19 pandemic is a good example of a short, sharp move followed by a reversal. Of course, the short-lived nature of that particular bear market cycle was due to the magnitude of the subsequent fiscal and monetary policy reactions taken by authorities globally – rescuing investors from what may have otherwise been a lengthy drawdown.

Rather than relying on a rule-of-thumb, we think metrics such as (1) risk-adjusted performance (in standard deviation terms) and (2) the 200-day moving average (200d MA) may offer stronger clues to overall market trends for both asset classes. For example, we saw bitcoin decline 1.4 standard deviations between November 2021 and November 2022 relative to the token’s average performance in the previous 365 day period. That’s comparable to the 1.3 standard deviation move in equities over the same timeframe, which speaks to the equivalency of bitcoin’s 76% fall and the S&P 500’s 22% decline, when measured in risk-adjusted terms.

Because this metric naturally accounts for crypto’s larger volatility, this makes z-scores particularly well-suited for crypto markets, though it’s not without its drawbacks. Not only is it somewhat more difficult to calculate, but this metric tends to generate fewer signals in stable markets and may not react as quickly to changes in the broader trend. For instance, our model indicates that the most recent bull cycle ended in late February. But it has since classified all subsequent activity as "neutral," highlighting its potential lag in rapidly changing market dynamics.

Comparatively, we think the 200-day moving average (200DMA) offers a less complex and more robust framework for identifying sustained market trends. By requiring at least 200 days of data for valid calculations, it smooths out short-term noise and adapts to recent price action, providing a clearer picture of momentum. The “rules” are simple:

In our view, this approach not only aligns with the broader trend signals in our “20% rule” and z-score models, but it also enhances the precision needed for actionable insights in dynamic market conditions. For example, in addition to capturing the sell-offs witnessed during the pandemic (early 2020) and Fed rate hiking cycle (2022-23), it captured the 2018-19 crypto winter and the decline in mid-2021 due to the ban of cryptocurrency mining in China. Moreover, we find that it better maps to the large increases and decreases in investor sentiment over various periods. See Charts 5 and 6.

Crypto winter?

So, are we in a crypto bear market? Up until now, we’ve primarily focused our analysis on bitcoin because the comparison with traditional markets like US equities required an asset with sufficient history. However, although bitcoin is often used as a proxy of overall crypto performance, using it as the benchmark for gauging crypto market trends is becoming less and less practical as the asset class expands into new sectors (e.g. memecoins, DeFi, DePIN, AI agents, etc).

For example, the 200DMA model on bitcoin does suggest that the token’s recent steep decline qualifies this as a bear market cycle starting in late March. But the same exercise performed on the COIN50 index (which includes the top 50 tokens by market capitalization) shows the asset class as a whole has been unequivocally trading in bear market territory since the end of February. Indeed, this is consistent with the total crypto market cap (ex-BTC) falling by 41% from its December 2024 high to $950B, compared to a (less than) 20% decline in bitcoin over the same period. This disparity underscores the higher volatility and risk premium inherent to altcoins further down the risk curve.

Conclusions

As bitcoin’s role as a “store of value” continues to grow, we think a holistic evaluation of crypto’s aggregate market activity will be needed to better define bull and bear markets for the asset class, particularly as we’re likely to see increasingly diverse behavior in its expanding sectors. Nevertheless, both BTC and the COIN50 index have recently broken below their respective 200DMAs, which signals potential bearish long-term trends in the overall market. This is consistent with the fall in the total crypto market cap and decline in venture capital funding for this space, hallmarks of a potential crypto winter rising.

Thus, we think this warrants taking a defensive stance on risk for the time being, though we still believe that crypto prices may be able to find their floor in mid-to-late 2Q25 – setting up a better 3Q25. For now, the challenges of the current macro environment require greater caution.