The terms ‘bull and bear’ are words used to describe how the markets are performing. When the market is doing well, then it’s described as a bull. And when it is declining, it is referred to as a bear.
Since cryptocurrencies are highly volatile, these terms are mainly used for long-term purposes. Also, the market changes are noted by swings (which are usually 20%) from each direction.
This article is a guide that will take you through everything there is to learn about these trends and specifically in cryptocurrencies. We will look at the definition of bull and bear markets, their characteristics, their differences, how one can invest in them, and how to know whether we are in a bull or bear.
Defining Bull Market
When a market is in a bull state, this means that the economic conditions are favorable and the market is on the rise. Here, investors enjoy every bit of it and only have nice things to say concerning the market.
In a bull market, there is a high level of employment, the economy is stable if not strong, and the asset prices are high. Bull markets can appear both in cryptocurrencies and traditional markets. In the cryptocurrency bull run, some levels are stronger and more consistent than in traditional markets.
A bull run in cryptocurrency is basically when there is an increase in the price of 40% between day one and the second day. This happens due to crypto markets being smaller than traditional markets, and as a result, they are highly volatile.
The word “bull market” was derived from the bullfighting style where the bull attacked its opponent with horns upward. A market that is ‘bullish’ has a positive outcome and the prices of the assets keep on rising.
In the cryptocurrency world, a bull phase brings growth to the value of cryptocurrencies, and investors use this opportunity to grow their crypto portfolio. Here, you will see investors buying securities.
A bull market will appear this way; an investor buys securities using fiat currency which in turn raises the price of securities. This bull stage will remain as long as the supply is higher than the demand. After the bull reaches its limit, prices start to fall, and the bear takes over.
What Brings a Bull Market?
From what we have seen, investors are the ones that cause a bull market when they purchase securities at lower prices based on the feeling that the prices will rise and their return on investment (ROI) will be high.
However, it is not only investors who can cause a bull market, other factors include low unemployment rates and strong gross domestic product. Just like in traditional markets where good economic conditions boosts the confidence of investors, cryptocurrencies rely on the same confidence to succeed.
But since Crypto is still new, they have fewer investors compared to traditional assets and securities that have been in existence for over hundreds of years.
That said, cryptocurrencies have unique factors that determine the market. They include:
- Pop Culture support and Mainstream: For example, in 2017, the bull run was influenced by DJ Khaled, Paris Hilton, and the Big Bang Theory.
- Major events such as the COVID-19 outbreak also play a big role in determining the markets. During the lockdown, many people turned to cryptocurrencies as a way to survive.
- Optimism from Major people has also driven these markets. For instance, JPMorgan predicted that Bitcoin would increase in value to $146,000.
- The introduction of institutional capital is also a factor that influences the economy. MicroStrategy’s $650M Bitcoin investment is a good example.
Features of a Crypto Bull Market
It has distinct and unique characteristics
- It will have certain projects that are overvalued.
- Prices will drop slightly when there is some troubling news.
- Prices rise in the event of good news.
- There is an increase in interest in cryptocurrency among celebrities and influencers that would not have thought of cryptocurrency before.
- There would be frequent talks of cryptocurrencies in the media and other social media platforms.
- The investors will increase their positivity toward the market.
- There is a strong demand despite a weak supply.
Bull-Run in Crypto
This is the extension of the period when investors purchase cryptocurrencies. It is characterized by the features noted above such as having a strong demand despite weak supply, a rise in prices, and high confidence in the market.
In most cases, the bull period will extend due to the investors’ confidence in the market. When they are confident, the prices rise and more investments are made. In the case of cryptocurrencies, a coin’s value will majorly depend on public confidence in it.
Defining a Bear Market
A bear market is where the value of the cryptocurrency has fallen usually by 20% and continues to decline. A good example is in 2017 when there was a crash in cryptocurrencies and Bitcoin fell from $20,000 to $ 3200 in a matter of days.
This market is said to be bearish when it records a fall of 20% from the previous high prices. As a result, prices will be low and they will continue dropping. This trend affects investor’s morale toward the market resulting in a downward pattern.
The word bear market was derived from the bear style of attacking its enemy. Where it would start high and later move to attack low using its claws moving its weight downwards.
The market experiences slow movements in terms of employment rate and the economy. These conditions are brought about by geopolitical prices, poor economic policies, and natural disasters. In a bear market, investors have little confidence and optimism witnessed in a bull market.
Some Crypto traders tend to buy assets in the bear market stages. Their idea is that the market will eventually rise in the future and they will sell the assets they bought at lower prices at high prices. However, this is not always the case.
Cryptocurrencies are highly unpredictable. One minute they might be high-valued, and within minutes that changes. Troubling news concerning a particular crypto may cause its value to decrease within minutes.
The decrease in value will cause more people to avoid investing for a while for fear the coins will suffer more blows. Other people, because of fear, will sell their investments at lower prices further causing the downward slope. The good thing is, after some time, the market will start climbing to the bull market.
What Brings a Crypto Bear Market?
A bear market occurs when there is a continuous fall in prices. Due to the continued decline in prices, the investors lose confidence in the market resulting in more declines. Political instabilities, wars, and pandemics can cause the beginning of the bear market.
But in crypto, it is much harder to know when a bear market will start since this is still a new topic. While on the other hand, there are thousands of data regarding stock markets. An analyst who has studied these data might be able to predict them.
Many factors will influence a crypto bear market. They include:
- A decrease in trading. It is mainly brought about by people holding their coins due to the unpredictability of the market.
- When the current price of an underlying asset is higher than its price of futures trading.
- Changes in fund rates by the federal government can also influence a crypto bear, specifically, the bank rates of borrowing and lending their excess reserves overnight.
- Government restrictions can also lead to a bear market. An example is when China passed restrictions on cryptocurrencies restricting users from mining coins. Such laws bring a lot of doubt to investors.
- Negative comments from some people. Like in 2017, Bitcoin faced a major setback when the CEO of Jamie Dimon JPMorgan termed Bitcoin as a fraud. Before his statement, the coin was doing very well and had reached $20,000 per unit.
- When an asset reaches a 200-moving-day average from a 50-day moving average.
Features of the Crypto Bear Market
A bear market has distinctive characteristics that distinguish it from a bull market.
- Here the supply is greater than the demand.
- The prices will decrease and continue decreasing for longer periods.
- Investors have no confidence in the market.
- In the event of good news, there are lower highs.
- In the event of unfavorable news, there are lower lows.
- You will find that there is a lot of negative information on the internet pertaining to cryptocurrencies.
- Analysts, economists, and traditional finance will have little trust in cryptocurrencies.
Differences Between Bull and Bear Markets
Now that we have looked at the two markets. Let’s look at their key differences. There is no doubt that the most common difference is seen in pricing. Even so, there are other key distinctions to help you differentiate the two. The effects of bear and bull in stock also apply to cryptocurrencies.
In Crypto, however, the factors will vary because of their vulnerability to fluctuating prices, and as a result, its market tends to be faster. If a market is in either the bear or bull stage, this state is adapted fast.
Bull and bear markets are easily noted in stock. But in crypto, it can be hard since many crypto investors give their views concerning the coins and these views influence the cryptocurrency differently.
For instance, if a cryptocurrency is in the process of recovering from the bear state, an investor may enter the bull mode while still at the bottom of the bear state. This will in turn push the prices higher. Bull markets move faster compared to stocks. Also, cryptocurrencies in bull markets are short. They can take a few days or even a few months.
When the bull market is at its strongest, investors will decrease because they are selling the currencies fast and turning them into cash. That is why these markets affect cryptocurrencies differently from stocks. Here are other notable differences between the two markets.
Supply and demand
In the bull state, the demand for cryptocurrencies is high while the supply is low. Meaning, many people are willing to buy them but are not willing to sell them. For this reason, their prices tend to be high as investors compete to buy what is in stock.
In a bear market, everything is vice versa, people are willing to sell than are willing to buy. Therefore, demand here is lower than supply and prices tend to drop as a result.
Market scenario
As GDP increases, it brings forth a bull market. Whilst a falling GDP brings a bear market. An increase in GDP automatically increases the revenues of companies which results in high wages and salaries that eventually lead to the growth of consumer spending.
On the other hand, when the company’s revenues and wages are low, the GDP will decrease and it will be accompanied by recessions. The GDP will continue declining for two quarters consecutively.
Effect on the economy
A bear market is associated with a weak economy. An economy will fall due to low income and revenues, as well as a decline in consumer spending. The same case applies to cryptocurrencies and stocks where investors are skeptical about investing.
While a bull market is seen as a strong market that has a high rate of consumer spending and increased profits. During bull runs, stocks and cryptocurrencies also increase.
Investors viewpoint
The investor’s views and notions greatly affect cryptocurrencies. When a market is in the bull stage, it means the cryptocurrency is doing well, the prices are high, and investors have faith in the coin. This boost in confidence brings in more investors.
A bear market is dull and everything is negative. Investors at this stage will start selling whatever they had in store in fear that the prices will continue falling. This panic further drops the prices of cryptocurrencies.
Stock price
A simple way to find out whether a market is in a bull or bear market is by looking at the current prices of the cryptocurrencies. From there, it’s simple, you just have to keep in mind when the prices are high, the market is at a bull stage, and when assets are declining, investors have low confidence so, the market is in a bear state.
Liquidity
When talking of liquidity, the bull market has the highest liquidity because investors have trust that they will get high profits fast. The high returns come due to the low transaction cost used to trade stocks which boosts the confidence of investors. In a bear market, the liquidity is low since there is a lack of trust in the market.
International investments
In bull, more people are willing to take risks. Because they are not worried the market will collapse. They also invest in different upcoming trends in the hope they will bring in revenue. While in bear, due to the declining prices, investors shy away from investing in any projects.
Employment opportunities
The job market goes hand in hand with changes in the market. In bull, the economy is stable, revenues are high, and consumer spending is high. Therefore, unemployment is low. On the contrary, in a bear market, unemployment is high since companies are earning little.
Which Market is better, the Bear or Bull Market?
Crypto investors tend to buy cryptocurrencies in the bear market. Their idea is to purchase the coins when they are at lower prices and sell them at a high cost when the market is at a bull.
That does not mean buying in the bull is a bad idea. Purchasing the bull has an advantage. One, since people have trust in cryptocurrencies that are in the bull market, the assets which are already high keep on increasing as well as the profits.
In trading, there will always be risks and so is investing in cryptocurrencies. The best way to avoid losing it all is by being up to date with both past and current trends. It is important to learn how to invest in both markets since the chances of running into both are high.
Here is How to Invest in a Bull Market
The first thing is to identify and study the trend prior so that you can purchase early. This gives you the advantage of selling your stock when the prices are high. The good thing about this market is, it takes longer. So, the losses you might have made early can easily be recovered.
In case a crisis emerges and you sense the market is headed into a bear, the best way to protect yourself is by lowering your spot. Think of converting your assets to cash, precious metals, or other assets. Chances are they will survive once converted.
Keep on checking for prices in the bullish market, especially at the end of the season. Prices tend to be lower at the end of the bull.
Here is How to Invest in a Bear Market
We have seen that this market comes with a lot of risks. I mean, Prices are low, and investors have little confidence. So who wants to invest here when there is so much negativity surrounding it?
However, do not be discouraged by all the negativity. You can try buying assets at lower prices and selling them in the future when the prices have shot up.
Another way to go is by selling the assets that you already have in store when you sense that the market is making a shift to a bear market. You will sell them at good prices and then buy them back at lower prices since the market is now declining.
In the bear market, it’s not easy to predict how long this period will last. Consequently, there is always a fifty-fifty chance of either making profits or losses.
In conclusion
From the guide, we have seen that many factors can influence the market. In cryptocurrencies, things can get more complicated because of their volatility which is high compared to the stock market. With that in mind, before investing in either the stock market or cryptocurrencies, familiarize yourself with the differences. Find out when to invest.
Crypto investors invest when the markets are low and hold their coins until when the markets are high which is at the bull. Apart from that, there are plenty of ways traders can expand their profits like checking out the rectangle pattern in the bull market.
To be at the top, first, learn the behavior of assets in bull and bear. This helps in getting to know how to work around these markets. Also, be conversant with the latest cryptocurrency news, you can get a thing or two which might be of help, and do not forget to get bits of advice from experts who have already mastered the game.
It is important to know that investing in any market be it bear or bull comes with risks. That is why doing enough research on the two essentials. From the research, is where you will get to know where best to invest in.
