Bull and bear markets are pretty important terms you’ll come across in stocks, real estate, and basically any other tradable asset. These terms also apply to cryptocurrency as the crypto markets are generally highly volatile and often subject to sudden, massive price swings. The markets are so speculative that you might not know where a token is headed next in a matter of minutes. In such fluctuations, the crypto markets go either one of two ways: a bull market or a bear market.
Simply put, a bull market is a rising market, while a bear market is a declining one, both of which are prompted by day-to-day (or even moment-to-moment) volatility. For example, the total cryptocurrency market capitalization increased from $15 billion USD to $700 billion USD between January 2017 and January 2018; this was a bullish market period.
However, the reverse was the case between January 2018 to January 2019, when the total cryptocurrency market cap nosedived from $700 billion USD to $91 billion USD. In one year, the cryptocurrency market cap fell by 87%, resulting in a bearish period for the cryptocurrency market.
As a potential crypto investor, understanding the characteristics of bull and bear markets in crypto will allow you to thrive in both periods and maximize profits. That being said, this piece educates you on what bear and bull markets are, their causes, and how to maximize profits at any point in time.
What Does a Bull Market Look Like?
A bull market, or “bull run”, as it is otherwise described, is simply an extended period when most investors buy. At this point, demand exceeds supply, resulting in high market confidence and rising prices.
If you notice an uptrend in the prices of an asset(s) such as cryptocurrency or in any other asset class, this could indicate that many investors are becoming optimistic or “bullish” about the possibility of a price increase. More specifically, this could indicate the beginning of a bull market, which is frequently accompanied by a sustained increase in asset prices, followed by a strong economy and high employment levels.
In addition, investors focus on long-term positive price movement during the bull run and may casually hold on to their assets accordingly to maximize profit. In most cases, positive emotions surround the market as investors’ portfolios often see extended periods of high value.
Characteristics of a Bull Market in Crypto
Below are some indicators or characteristics of a bull market in crypto that investors should note:
1. Increased crypto prices over a sustained period.
2. High interest in cryptocurrency among celebrities, influencers, and other sectors who might not have been interested in crypto.
3. Strong crypto demand despite weak supply.
4. Increased investor confidence in the crypto market.
5. Overpricing of certain crypto projects and increased conversations about cryptocurrency in mainstream media and social media.
Now, What Does a Bear Market Look Like?
On the other hand, a bear market is the exact opposite of a bull market and strikes fear in investors’ hearts for almost no good reason. The bear market occurs when the market trend demonstrates downward movements and continues to fall drastically. At this point, there are hardly any gains to be made, considering there are fewer opportunities for profit, while losses are experienced much more frequently. Specifically, when the price of an asset class falls below 20%, then a bear market could be imminent.
In addition, high financial insecurity and unemployment rates can be expected during a bear market, thanks to investors’ declining interest and low turnover from major corporations. Furthermore, because investors are afraid of losing money in a declining market, they often seem to ignore any good news (even if there is any) and continue selling quickly, pushing prices even lower.
Unlike in a bull market, investors focus on long-term negative price movement when the market is bearish. As a result, cryptocurrencies tend to lose significant value over extended periods of time.
Generally, a crypto bear market begins with a demand-supply imbalance that sees most market participants on the sell side. Fear and uncertainty begin to creep into frothy market conditions, and selling starts to outweigh the demand side, resulting in significant declines that fail to recover quickly. So far, the most infamous bear market seen in crypto was in 2018, during which many cryptocurrencies lost over 90% of their value in less than a year.
Characteristics of a Bear Market in Crypto
These are some notable characteristics of the bear market in crypto:
1. Crypto supply is greater than demand in the market.
2. Declining prices over a sustained period.
3. Increased lack of investor confidence in the market accompanied by reduced talk or negative talk of cryptocurrency in mainstream media and social media.
4. General distrust in cryptocurrency among economists, governments, analysts, and traditional finance.
5. Fewer positive news events could stimulate the market and more negative sentiments among investors.
6. Declining stock prices, especially from major corporations that are heavily invested, accompanied by panic among institutional investors.
Bear vs. Bull Market: Key Differences You Should Know
As a crypto investor, you want to be able to identify whether a bull or bear market is imminent, even though both of them are characterized largely by the direction of crypto prices moving upwards or downwards. As a result, it is important to pay attention to some key differences between both, some of which include but are not limited to the following:
1. A bull market happens when the stock or crypto market trend is optimistic and has a high rate of investment returns, while a bear market occurs when there is a negative impact or decline in the market trend.
2. Investor confidence is high in a bull market, and a rise in investment security can be seen widely. In stocks, investors expect positive future results and opportunities. With digital currencies, positive outcomes might not be the case if you buy coins at the top.
3. In a bear market, investments are difficult because of their poor returns. However, buying the dip is a popular move when investing in cryptocurrencies.
4. The impact of a bear market on the economy is negative and at a faster rate, while during a bull run, the market recovers, which allows the economy to grow positively in the long term.
5. Income and employment are usually high during a bullish market trend. The opposite, however, occurs in a bear market. This means there is an increase in layoffs and a drop in income rates, which reduces purchasing power.
How Do You Invest in a Bull Market Period?
Investing in a bull market requires that you are knowledgeable about certain indicators, such as sustained increments or increases in the prices of multiple alternatives in an asset class, all of which generally imply the need to purchase early enough. Once you buy early, you can later sell at higher prices as the market is reaching its peak. More so, considering bull markets occur over an extended period, losses are usually minimal and ephemeral.
However, if the market takes an unprecedented turn due to unforeseen circumstances such as regulatory issues or bankruptcy, to name a few, then the best way to handle the situation would be to reduce positions, particularly in less proven cryptocurrencies.
In the above scenario, investors may temporarily move their holdings into cash, precious metals, or similar assets, which have a better chance of surviving a crash. More so, while cryptocurrencies tend to be available at very low prices towards the end of a bull run, it is important for investors to keep an eye on the market and take advantage of opportunities to diversify their portfolios.
How Do You Invest in a Bear Market Period?
Nothing spells higher risk than investing in a bear market, as prices are lower and investors have low to zero confidence in cryptocurrencies. Albeit, this risk also brings the possibility of higher returns in the future. For that reason, you can purchase cryptocurrencies when they are at lower price points and sell them at the peak of the next bull market.
Investors also use another strategy in a bull market. They sell their existing holdings as soon as they notice downtrends and then buy back these holdings later on at a much lower price as the market continues to decline.
Generally, there’s no way of telling how long a bear market will last, particularly if it’s driven by recession or related circumstances. At this point, the problem is that we don’t know how long the dip will last and how much further prices may drop. Two issues happen here: you may either make a premature buy or miss out on a good investment.
Why You Should Care
By now, it is clear that whether you are an experienced investor or just getting started, understanding a bull vs. bear market is vital when making informed investment decisions. While investors can invest during both periods, it is important to remember that crypto investment has risks and rewards, so thorough research to pick the best strategy is important.
Find out more about bear markets:
How to Get Through Crypto Bear Market
Learn about Central Bank Digital Currency (CBDC):
CBDC Explained: Everything You Need to Know About Central Bank Digital Currency