A correction is a pullback of an asset’s price of at least 10% to adjust for over-valuation.
There is no strict definition of a correction, but it is commonly used to describe a rapid decrease of at least 10% in the price of an asset from a recently achieved peak. It is called a correction because it usually returns the price from an abnormal surge to its long-term established trend.
Corrections are usually followed by recoveries, but they may also lead to more prolonged periods of decline called bear
markets when prices can drop by 20% or more. For example, according to the data of the financial services company Charles Schwab, there were 24 corrections in the S&P 500 stock market index during the period from November 1974 to February 2020, only five of which have resulted in bear markets.
In the cryptocurrency
market, corrections of 5-10% are significantly more frequent than in the stock and other traditional markets, owing to its characteristically high volatility
. However, they tend to be balanced out by similarly frequent recoveries, and the overall trend of most major coins since the inception of the market in 2009 has been a bullish
As an example, Bitcoin’s (BTC
) price grew from as little as $0.003 per coin in 2010 to more than $19,000 in 2020, despite at times suffering corrections of as much as 50% in the span of a single day.