Usually following a dramatic rise in price, a correction occurs when the price of an asset drops by at least 10 percent.

Corrections are commonplace in the cryptocurrency market as they often occur when there is volatility. The price of cryptocurrency is known to rise at a rapid pace and often leads to an overvaluation for a short period of time. Following these rises, there is often a fallback of at least 10 percent - and this is known as a correction.

Just as price rises in the crypto space are rapid, the corrections that follow are also seen as being quite sharp and quick. Essentially, it is a normalising of the price of the coin after its abnormal surge. This is why it is known as a correction as it is looking to get the price action back on a more even keel.

Corrections, especially in the crypto space, can happen a few times a day in a matter of hours, but there are longer ones that are endured, and these are known as bear markets. A more prolonged decrease, of a bigger percentage - like 20 percent and over - can lead to a bear market.

Cryptocurrency corrections are far more frequent. According to data from Charles Schwab, there were 24 corrections in the S&P 500 stock market index during the period from 1974 to 2020, only five of which have resulted in bear markets.

In the crypto market, there have been corrections that have lasted a few months, but in general, since 2009, Bitcoin has been on a bullish trend despite having multiple 50 percent-plus corrections in the last decade.

Bitcoin shows how even with major corrections throughout, it still manages to maintain an upward trajectory over a long period. The coin grew from $0.003 in 2010 to more than $19,000 in 2020 and topped out at $64,000 a year later.

ELI5 Correction

When the price of an asset rises by a lot and then falls back by 10% or more, it is called a correction.