Market correction vs. bear market: Key differences explained

Bitcoin

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 decline in response to an overbought or overvalued market. In other words, a “pullback” from the recent highs allows the market to digest the gains and reset for another higher leg.

Generally, when the market drops 10% or more after coming from a recent high, it’s considered a market correction. However, the 10% figure isn’t a hard-and-fast rule. Some corrections are a 3% drop; others can drop as much as 20%. Market corrections of 5% to 10% are more common in cryptocurrency.

Corrections almost always occur when the economy is expanding, as investors become overconfident and push asset prices too high, which sets the stage for a “reversion to the mean” as corrections bring prices back to more realistic levels.

How often do market corrections happen?

Stock market corrections usually happen every two years, but since the crypto market is more volatile, price corrections tend to occur more frequently.

There is no definite timetable for crypto 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 driven by several factors — all of which contribute to its overall market volatility. Hence, it can be challenging to pinpoint the exact time frame of a market correction.

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