Bull Vs Bear market in crypto world and how to make the most of both?
The bull and bear market are common trading terms that every investor in crypto should understand since they form part of the financial trading system. This can help you succeed in your trading investments. We created this post to help you learn more about them, including their definitions, characteristics, and differences. Read on!
What is the bear crypto market?
Though bears in real life are cute, the bear markets are not great for crypto investors. A market is bearish when there is a downtrend over a short duration. During a bear crypto market, the prices begin dropping fast with no hopes of rising. A bear market occurs when it experiences a 20% dip over at least two months.
So, why is it referred to as a bear market? The term bear is believed to have originated from the animal’s behaviour of pointing its head down during a war. Before a bear attacks, it tends to swipe its paws downward. In the crypto market, bear, therefore, means down.
As an investor, you can get an idea of the current trend of asset prices by focusing on daily, weekly, or even monthly charts. Since Ethereum and Bitcoin are the top cryptocurrencies, the market focuses on them to assess the trend in price.
If, for instance, the price of Bitcoin drops significantly within a few days. This is a clear indicator of a bear market.
What causes a bear market?
A bear market often begins before the economy enters a recession. A downward trend in prices is the main cause of a bear market. When most investors notice the prices dropping, they believe that the prices will not recover. This can lead to a further downward trend.
Apart from that, other factors can also contribute to a bear market. Some of them include war, a global pandemic, or a weak economy. Slow economic growth and bursting market bubbles can also cause a bearish market. During a bear market, investors monitor indicators such as interest rates, inflation, wage growth, and hiring to assess the health of the economy.
In a bear market, investors tend to place most of their funds into stable assets like government bonds to preserve capital. The more investors sell, the more market growth stalls.
Government intervention can also lead to the beginning of a bear market. Since the crypto market is still young compared to the stock market, predicting when a bear market is likely to start is not easy.
On 16.05.2022 Terra lost it`s peg to USD which was one of the factors that accelerated the last crypto crash. On the chart below you can see how this event affected the entire cryptocurrency market
Characteristics of the crypto bear market
A bear market is part of the economic cycle and can occur fairly often. Every bear market is usually unique in terms of how far the market may drop and how long it can last. In a bear market, the supply is usually greater than the demand. As the prices keep falling, the investor confidence goes down.
Most crypto investors become more pessimistic as they believe the prices will keep on falling. During such trends, the level of market uncertainty is usually high. This often leads to a lower trading volume since most traders start holding their coins. When some crypto investors are overwhelmed with fear, they sell their coins and make losses. The financial losses can be worth millions.
A high rate of unemployment is also another characteristic of a bear market. If, for instance, a crypto investor only depends on this for their main source of income, they may be forced to look for an alternative job during bearish markets.
If you have been investing in crypto for a while, you have heard about Bitcoin being dead a couple of times. Such negative news regarding cryptocurrencies is often a characteristic of a bear market. The news comes not only from different media channels but also from economists. The effects of negative market sentiment from different institutions are often felt across the entire market.
What is the bull crypto market?
The bull crypto market is the opposite of the bear crypto market. This refers to when prices of cryptocurrencies increase significantly. Bull crypto markets are strong and are sometimes referred to as bull runs.
A bull crypto market indicates that the market is doing well. The increase is usually experienced in 8 weeks. Just like the bear market, the bull market was named this due to the animal behavior during a fight. The term bull was initially used in the traditional stock market before the crypto world embraced it.
During combat, a bull steers its horns upwards. That is why in the crypto world, the term bull represents the upward trend of asset prices. In a bullish market, crypto investors expect the price to keep on rising. This enhances investor confidence. During such times, it is easy for serious investors to make the most of their rising portfolios since the economic conditions are usually favorable.
What causes the bull market?
The major cause of a bull market is economic growth. Some of the metrics that often contribute to a bull market include a high rate of employment, an increase in a nation’s gross domestic product, and low-interest rates. Bull markets often begin with investors buying securities. Since bullish markets increase the price of securities, it can also be done using fiat currencies.
Characteristics of the crypto bull market
During crypto bull markets, the demand outweighs supply since more people are buying. Traders are also more optimistic in a bull market since they believe the price will keep rising. More market confidence can draw in more investment.
During bullish markets, higher employment rates and high demand for securities exist. The economy is strong, and there is increased GDP. An increase in IPOS (Initial Public offerings) is also a characteristic of a bull market.
As long as demand keeps on exceeding supply, the bull market is likely to go on for some time. A bull market trend can last for months or even years, giving crypto investors enough time to invest and gain profits from them. However, this does not go on forever since, at some point, the market may turn into a bear market.
What is the difference between the bear and bull market in crypto?
Every crypto investor should understand the key differences between bull and bear markets. Some of them include the following.
Demand and supply
We mentioned that the demand for cryptocurrencies outweighs the supply in the bull crypto market. During the bull market period, most investors purchase crypto, and not many are ready to part with them. Since most investors compete to buy crypto in a bull market, the prices keep on rising.
On the other hand, in a bear market, most investors sell cryptocurrencies. This differs from the bull market since the demand is lower compared to supply, making the prices drop even further.
Shifts in market trends impact the rate of unemployment during crypto markets. In a bull market, the economy does well, and the unemployment rate is, therefore, low. This is different during bear markets since most companies try to reduce their employees while some crypto investors look for alternative sources of income. Since many people earn less during bear crypto markets, the period can prolong.
In a bull market, there is usually a rise in GDP. This often rises with overall income and salaries and leads to more spending power. A bear market is characterized by a falling GDP. When a bear market occurs, companies’ revenues are weak, and employee salaries either stagnate or are keen on going down.
A bull market indicates high liquidity since the market confidence is on the rise. During this period, more investors try different activities to ensure a constant flow of money.
This is different from periods of a bear market when most investors are not confident. It discourages liquidity from entering the market since investors are cautious about investing in crypto.
Impact on economy
During a bull crypto market, the market recovers, and the economy starts growing. There is more purchasing power and a rise in profits. A bear market is not the best since it negatively affects the economy fast. In this period, most businesses struggle to achieve their revenue goals.
How to invest in a bear market?
Trading in a bear market can be challenging, especially for inexperienced investors. Those who choose to invest in a bear market try to minimize positions in weaker cryptos. Bear markets often affect less proven cryptos since they often take more time to recover.
Seasoned crypto investors take advantage of market trends. When things are on a downward trend, many people liquidate their crypto investments to wager on other assets such as metals. When the market is bearish, the prices are usually quite low, and some investors choose to buy at this point.
How to invest in the bull market?
Many crypto investors take advantage of the bullish markets by investing early as the prices rise and then selling when they reach their peak. Investors assess the state of the market carefully before implementing any strategies. One of the main strategies most investors use during a bull market is buying and holding. This involves purchasing security and then holding onto it to sell later.
Some investors also watch out for retracement within this market and purchase during these periods. This is the period when the price of a security is reversed. Other investors also try to capitalize on this market by engaging in full-swing trading.
Though jargon such as bull and bear markets can seem confusing to a new crypto investor, they are important to understand. We have discussed the most crucial aspects of both markets to simplify things. Note that this article is not financial advice but has an educational and entertainment purpose. Whether you choose to invest in a bear or bull market, you must do your own extensive research beforehand.
Is the market always in a bear or bull phase?
No. Though there are periods of bear and bull markets, sometimes the market exists in a neutral state. During this period, price fluctuations often stay within a small range.
What is a crypto crash?
This refers to a sharp and sudden decline in the price of assets. It can be around or more than 10% in a single day.
What strategies do Bitcoin traders use to minimize financial risk?
Some engage in day trading, which involves selling and purchasing positions on the same day, while others do swing trading. This refers to investors maintaining certain positions briefly. Many traders also try to diversify their portfolio by investing in different cryptocurrencies or even other assets.
Is crypto currently in a bull or bear market?
Technical analysis and benchmarks show that in 2022, crypto seems to be in a bear market.
Zornitsa is the Editor-in-chief at Coinlabz. She is involved in researching the impact of blockchain technology and the way crypto is transforming peoples’ perceptions of finances.