Bitcoin and the COIN50 index have recently fallen below their respective 200-day moving averages, signaling a potential shift toward a bear market in the crypto sector. We anticipate that the market may stabilize in the mid-to-late second quarter of 2025, setting the stage for a rebound in the third quarter.

Key Takeaways:

By mid-April, the total market capitalization of cryptocurrencies excluding Bitcoin had dropped from a December 2024 peak of 1.6trillionto950 billion, a 41% decline. Additionally, venture capital investment has fallen by 50-60% compared to 2021-2022 levels.

We recommend adopting a conservative risk-management strategy at this stage. However, we expect market prices to stabilize in the mid-to-late second quarter of 2025, laying the groundwork for a third-quarter rebound.

Overview

Several factors are converging, potentially heralding a new "crypto winter." The introduction and potential escalation of global tariff policies have significantly worsened market sentiment. By mid-April, the total market capitalization of cryptocurrencies excluding Bitcoin had declined to 950billion,a411.6 trillion and a 17% year-over-year decline. Notably, this level is even lower than market performance during nearly the entire period from August 2021 to April 2022.

In the first quarter of 2025, venture capital investment in the crypto sector saw a modest increase from the previous quarter but remained 50-60% below peak levels in 2021-2022. This has significantly limited new capital inflows into the ecosystem, particularly affecting the altcoin segment. These structural pressures stem primarily from current macroeconomic uncertainties. Fiscal tightening and tariff policies continue to suppress traditional risk assets, leading to stagnant investment decisions. Although the regulatory environment offers some support, the crypto market's recovery remains challenging amid overall stock market weakness.

The interplay of these factors has created a challenging cyclical outlook for the digital asset market, necessitating caution in the short term (expected to last 4-6 weeks). However, we believe investors should adopt flexible tactics to navigate market volatility, as a rebound could swiftly follow once sentiment stabilizes. We remain optimistic about market performance in the second half of 2025.

Defining Bull and Bear Markets

In equity markets, a 20% rise from recent lows or a 20% drop from highs is commonly used as a rule of thumb to identify bull or bear markets. However, this criterion is inherently subjective and ill-suited for the highly volatile crypto market. Crypto assets frequently experience 20%+ price swings within short periods, which do not necessarily indicate fundamental market shifts. Historical data shows, for example, that Bitcoin can decline by 20% in a week while still maintaining a long-term uptrend, and vice versa.

Moreover, the crypto market's 24/7 trading nature makes it a barometer for global risk sentiment during traditional market closures (e.g., nights or weekends). Consequently, crypto prices often react more strongly to global events. For instance, during the Federal Reserve's aggressive rate-hiking period from January to November 2022, the U.S. stock market (represented by the S&P 500) fell by 22%, while Bitcoin began declining earlier (in November 2021) and fell by 76% over a similar period—approximately 3.5 times the S&P 500's decline.

The Truth in Contradictions

It is important to note that the traditional "20% rule" for defining bull and bear markets is merely a heuristic and lacks a standardized definition. As Justice Potter Stewart of the U.S. Supreme Court famously remarked when defining obscenity: "I know it when I see it." Similarly, identifying market trends often relies more on experience and intuition than on rigid computational models.

Coinbase Monthly Outlook: A New "Crypto Winter" Approaches, with Market Rebound Expected in the Second Half of the Year

To systematize our analysis, we reference the S&P 500's rolling one-year highs and lows to identify key market reversals. Using this method, the U.S. stock market has experienced roughly four bull markets and two bear markets over the past decade—excluding the latest downturn from late March to early April (our model has already signaled a bear market). See Chart 1 for details.

However, this "20% threshold" overlooks at least two significant pullbacks of 10-20% that profoundly impacted market sentiment. Examples include the volatility surge triggered by China's 2015 stock market turmoil and the market震荡 (zhèn dòng, "shocks") caused by escalating global trade tensions in 2018 (as indicated by rising Federal Reserve global trade policy uncertainty metrics). See Chart 2 for details.

Coinbase Monthly Outlook: A New "Crypto Winter" Approaches, with Market Rebound Expected in the Second Half of the Year

We have observed that sentiment-driven market declines often prompt defensive portfolio adjustments, even if they do not meet the arbitrary 20% threshold. In other words, we argue that bear markets fundamentally reflect structural shifts in market dynamics, characterized by deteriorating fundamentals and contracting liquidity, rather than merely the magnitude of price drops. Additionally, the "20% rule" risks麻痹 (mábì, "paralyzing") investors by overlooking early warning signs such as diminishing market depth and defensive sector rotations, which historically presage major downturns.

Alternative Metrics

To address these limitations, we seek alternative indicators that more accurately reflect the relationship between price movements and investor psychology, applicable to both stocks and crypto assets. Bear markets are defined not only by asset returns but also by market sentiment—a critical factor in determining whether investors expect downtrends to persist and adjust strategies accordingly. This concept is nuanced because we are not merely observing sequential gains or losses but rather turning points in long-term trends. The COVID-19 pandemic serves as a prime example, where markets experienced a rapid, sharp decline followed by a swift rebound. The bear market's brevity was largely due to subsequent massive fiscal and monetary stimulus from governments worldwide, which prevented investors from enduring prolonged drawdowns.

Instead of relying on heuristics like the "20% rule," we favor two risk-adjusted metrics: (1) risk-adjusted returns measured by standard deviation and (2) the 200-day moving average (200DMA). For instance, from November 2021 to November 2022, Bitcoin declined by 1.4 standard deviations relative to its 365-day average; during the same period, U.S. stocks fell by 1.3 standard deviations. From a risk-adjusted perspective, Bitcoin's 76% drop is comparable in magnitude to the S&P 500's 22% decline.

Coinbase Monthly Outlook: A New "Crypto Winter" Approaches, with Market Rebound Expected in the Second Half of the Year

Because standard deviation metrics naturally account for crypto's high volatility, z-scores (standardized scores) are well-suited for crypto asset analysis. However, they have limitations: calculations are relatively complex, and signals are sparse during stable market periods, potentially delaying responsiveness to trend changes. For example, our model indicates the recent bull market cycle ended in late February, and the market has since been classified as "neutral," reflecting potential lag during volatile periods.

Coinbase Monthly Outlook: A New "Crypto Winter" Approaches, with Market Rebound Expected in the Second Half of the Year

In contrast, the 200DMA offers a simpler, more robust method for identifying sustained market trends. Calculated from long-term data, it effectively smooths short-term volatility and adjusts promptly to recent price movements, providing clearer momentum signals.

The judgment criteria are straightforward:

When prices consistently trade above the 200DMA with upward momentum, it typically indicates a bull market.
When prices remain below the 200DMA with downward momentum, it often signals a bear market.

This approach aligns with broader trend signals from the "20% rule" and z-score models while enhancing practicality and foresight in dynamic market environments. For example, it successfully captured key downturns such as the early 2020 pandemic, the 2022-2023 Federal Reserve rate-hiking cycle, the 2018-2019 crypto winter, and the 2021 pullback triggered by China's mining ban.

In our view, this method not only aligns with broader trend signals from the "20% rule" and z-score models but also enhances precision in extracting actionable insights in dynamic markets.

Furthermore, we have found that the 200DMA better reflects sharp fluctuations in investor sentiment across different periods. See Charts 5 and 6 for details.

Coinbase Monthly Outlook: A New "Crypto Winter" Approaches, with Market Rebound Expected in the Second Half of the Year

Coinbase Monthly Outlook: A New "Crypto Winter" Approaches, with Market Rebound Expected in the Second Half of the Year

Crypto Winter?

Are we now in a crypto bear market? Our prior analysis focused primarily on Bitcoin due to its extensive historical data, facilitating comparisons with traditional markets like the U.S. stock market. However, as the crypto asset class expands into emerging sectors (e.g., meme coins, DeFi, DePIN, AI agents), Bitcoin increasingly fails to fully represent overall market trends.

For instance, Bitcoin's 200DMA model indicates its sharp correction since late March has entered bear market territory. Applying the same model to the COIN50 index (covering the top 50 tokens by market cap) reveals that these assets have been in a bear market since late February. This aligns with the 41% decline in total market capitalization (excluding Bitcoin) from its December 2024 peak of 1.6trillionto950 billion; in contrast, Bitcoin's decline during the same period was less than 20%. This disparity reflects higher volatility and risk premiums among tail-risk altcoins.

Coinbase Monthly Outlook: A New "Crypto Winter" Approaches, with Market Rebound Expected in the Second Half of the Year

Conclusion

As Bitcoin's "store of value" narrative strengthens, we argue for a more systematic, holistic approach to evaluating overall crypto market performance to accurately define bull or bear states, especially amid increasing asset class diversity. Nevertheless, the current breakdown of both Bitcoin and the COIN50 index below their respective 200DMAs signals the early stages of a potential prolonged downtrend. This aligns with trends of declining market capitalization and contracting venture capital investment, both key indicators of an impending "crypto winter."

We therefore recommend maintaining a defensive risk-management strategy at this stage. Although we still expect crypto asset prices to stabilize in the mid-to-late second quarter of 2025 and set the stage for third-quarter improvements, the complex macro environment demands continued vigilance from investors.