Bitcoin has taken a significant hit recently, falling 14% in a single day and 25% over the past week. And this bear market could extend for several months before it fully bottoms, according to Bitwise’s Matt Hougan.

Although Bitcoin has shown a brief recovery, trading nearly 50% below its all-time high, investors are left grappling with questions: Why is the market down? Could it fall further? And when will it bottom?

6 key factors

According to Hougan, Bitwise’s chief investment officer, there are several complex reasons behind the current crypto market downturn, but six primary factors stand out.

1. The Four-Year Cycle: A major reason for the pullback is that long-term investors have been selling to preemptively adjust for the four-year market cycle, where crypto sees strong bull years followed by inevitable pullbacks. Investors, wary of a repeat of previous cycles, have sold significant portions of their holdings—estimated to be over $100 billion in Bitcoin last year alone.
2. Competition from Other Markets: Crypto has enjoyed significant retail interest, but now AI stocks and precious metals are pulling some attention away. “Attention investors,” who flocked to crypto in recent years, are now diverting their capital elsewhere.
3. The October 10 Leverage Liquidation: The crypto market also faced the largest leveraged liquidation event in history following an unexpected announcement by former President Donald Trump. This event triggered panic selling in the absence of traditional market liquidity, further depressing prices.
4. Concerns Over Federal Reserve Leadership: President Trump’s nomination of Kevin Warsh for Federal Reserve Chair raised concerns, particularly among investors who feared Warsh’s hawkish stance on interest rates, creating unease in broader markets, including crypto.
5. Rising Fears of Quantum Computing: There’s a growing anxiety within the crypto community about the potential threat of quantum computing, which could undermine the security of Bitcoin. While many believe it’s a long-term issue, the lack of visible action has led some investors to retreat from the market.
6. Macro Risk-Off Sentiment: A broader shift in global markets towards risk-off sentiment has affected Bitcoin. Alongside Bitcoin’s struggles, other assets like gold, silver, and tech stocks have also seen steep declines.

Could crypto fall further?

While the market’s current drawdown of 54% from its peak seems severe, Hougan cautions that it could go lower.

Previous downturns have been much larger—Bitcoin fell 86% in 2014, 84% in 2018, and 77% in 2022.

Historical trends suggest that bear markets typically last 12-13 months, so this current slump might not be over yet. However, given crypto’s maturing nature, a 77% drop seems unlikely, though it remains a possibility.

What could help it recover?

For many seasoned investors, this moment feels similar to past bear markets in 2018 and 2022, which were followed by massive rallies. Investors who bought the dip in those years saw substantial returns—around 2,000% from 2018 and 300% from 2022.

The fundamentals supporting crypto are still in place: a growing demand for digital currencies, increasing regulatory clarity, and innovations like tokenization and stablecoins continue to drive the sector forward.

The timing of the market bottom remains uncertain, but recovery often comes through time and exhaustion. Specific catalysts could accelerate recovery, such as regulatory developments like the Clarity Act, the continued rise of AI-linked crypto projects, or a return to risk-on market sentiment.

For now, Hougan advises patience. While it’s impossible to predict the exact moment the market will turn, the long-term outlook for crypto remains promising for those with the fortitude to weather the storm.

Crypto markets are volatile, and the current downturn could continue in the short term, Hougan adds. However, for investors with a long-term perspective, history suggests that bear markets often precede significant growth.

With key factors like regulatory advancements and growing adoption still in play, he argues that crypto’s future still holds substantial upside, making the current moment a potential buying opportunity for those prepared to wait.