Bull vs. Bear Cryptocurrency Markets: What’s the Difference and How to Deal with Both
The terms "bull market" and "bear market" are often used to describe the performance of the stock market - whether it is appreciating or depreciating. In this case, a rising market is called a bull market, while a falling market is called a bear market.
Given that crypto markets are typically volatile and fluctuate on a daily basis, these terms are used to refer to longer periods of time that are mostly upward or downward movements. Likewise, market changes manifest themselves as large swings (at least 20%) in either direction.
In this article, we will focus on how these trends apply to cryptocurrencies. Specifically, we will discuss: What is a bull market or a bear market? What are the characteristics of bull and bear markets? How do we know if we are in a bull market or a bear market? The key differences between bull and bear markets, and how to invest in bear and bull markets.
What is a bull market?
A bull market refers to generally favorable economic conditions. This means the market is rising and is usually accompanied by positive investor sentiment about the current uptrend.
Asset prices continue to rise in a bull market, which is accompanied by a strong economy and high employment levels.
This applies to both cryptocurrency markets and traditional markets. However, in cryptocurrencies, stronger and more consistent bull crypto phases are more common.
What does a bull market typically look like in cryptocurrencies? Price increases of 40% within one to two days are common. This is because crypto markets are relatively smaller and therefore more volatile than traditional markets.
The term "bull" is thought to have originated from the fighting style of a bull, in which it attacks its opponent with its upward-facing horns. Today, "bullish" markets or investors typically express optimism that an asset's value will continue to rise.
In the crypto market, charging bulls herald a bullish phase for cryptocurrencies. Here you will see the value of cryptocurrencies growing amid generally favorable economic conditions and optimistic investors looking to make the most of their growing cryptocurrency portfolios.
Simply put, investors start a bull market by purchasing securities. This can also be done with fiat currencies, as bull markets typically increase security prices. As long as supply exceeds demand, the bull market will continue. After a while, the bull market tired, so to speak, and the market turned and entered a bear market.
What causes a bull market?
As mentioned earlier, investors are the ones who start a bull market. When they feel that prices will start to rise and continue for an extended period of time, they will start buying stocks (at low prices) and become optimistic about the return on investment (ROI). Increased investor optimism also caused stock prices to continue to rise.
There are other factors that lead to bull markets. These include strong gross domestic product (GDP) and low unemployment. Generally speaking, favorable market conditions increase investor confidence. Likewise, cryptocurrency bull runs are influenced by similar factors as traditional markets.
However, the crypto market is still relatively new compared to traditional securities that have been around for hundreds of years. With a smaller total number of investors, cryptocurrencies may also be driven by factors unique to their niche.
For example, a crypto bull market could be driven by:
Mainstream and pop culture support: Think of 2017’s bull run, which was influenced by Paris Hilton and DJ Khaled, as well as shows like The Big Bang Theory.
Bringing in institutional capital: A good example is MicroStrategy’s $650 million Bitcoin ( BTC ) investment (over 70,000 BTC).
Optimism grows in traditional finance: Bitcoin could rally to as high as $146,000, JPMorgan strategists say.
Unique events that threaten traditional finance: For example, COVID-19 prompted many people to turn to cryptocurrencies amid the stress caused by the pandemic in traditional financial markets.
Characteristics of a Cryptocurrency Bull Market
Typical bull market attitudes and behaviors are:
Prices increase over a sustained period of time;
Despite weak supply, demand is strong;
Increase investor confidence in the market;
Some items are overpriced;
Inject discussions about cryptocurrency into mainstream and social media;
General interest in cryptocurrencies from celebrities, influencers and other sectors who may not have previously been interested in cryptocurrencies;
Prices soar when there is good news;
Prices dropped slightly amid bad news.
What is a “bull run” in cryptocurrencies?
A bull market is an extended period of time when large numbers of investors buy cryptocurrencies. It has the above characteristics of rising prices, short supply and high market confidence.
Investor confidence often drives a positive feedback loop that further prolongs a bull market (more investment, continued price increases). When it comes to cryptocurrencies, especially the price of a given cryptocurrency is heavily influenced and driven by public confidence in the asset.
What is a bear market?
A bear market, on the other hand, is a market in which the value of a cryptocurrency has fallen by at least 20% and continues to fall. One example includes the famous cryptocurrency crash of December 2017, when investors saw Bitcoin drop from $20,000 to $3,200 in a matter of days.
A declining bear market is characterized by a decline of 20% or more from a previous high. As a result, prices are low and falling. Downtrends can also affect investors' outlook and perpetuate further downtrends. The word "bear" is thought to originate from the way a bear fights - starting high and then striking down with its claws and pressing down with all its weight.
During a bear market, economic growth is slow and unemployment remains high. These situations can stem from poor economic policies, geopolitical crises, burst market bubbles, or even natural disasters.
Bear markets also lack the general optimism and confidence that most investors have during bull markets.
Typically, cryptocurrency traders aim to purchase assets during bear markets, especially during troughs. However, it is difficult to know exactly when the bear market will end, making it difficult for investors to take the risk of buying low-value cryptocurrencies that may or may not recover.
When the market receives news about adverse conditions for a particular cryptocurrency or stock, prices typically fall. The downward spiral leads to more people delaying investing because they believe more bad news will come soon and need to prepare for the worst.
Some people even sold their holdings out of panic, further contributing to the downward trend. The bear market eventually calms down, investors slowly gain confidence, and a new bull market cycle begins again.
What caused the cryptocurrency bear market?
A downward trend in prices usually leads to the beginning of a bear market. As prices continue to fall, investors simultaneously lose confidence that prices will recover, leading to further downward trends.
Generally speaking, factors such as wars, political crises, epidemics, and economic slowdowns may trigger the beginning of a bear market. Government intervention may also cause a bear market to begin. In cryptocurrencies, however, it is much more difficult to predict when a bear market will begin based on previous trends. While the stock market has decades of data for investors and analysts to refer to, the crypto market is relatively young.
While the causes of bear markets vary, there are some common indicators that suggest a bear market is about to begin. Some indicators of an emerging cryptocurrency bear market are:
Lower trading volume: This usually means people are starting to hold onto their coins due to market uncertainty.
Negativity in traditional finance: One example is JPMorgan CEO Jamie Dimon calling Bitcoin a fraud in 2017, just months before it hit $20,000 per unit and then promptly crashed.
Death Cross: A technical indicator regarding the intersection of an asset from its 50-day moving average to its 200-day moving average.
Backward: When an asset’s price in the futures market is lower than the current market price.
Changes in the federal funds rate: the rate at which banks lend/borrow excess reserves overnight.
Regulatory intervention: An example of this is the Chinese government’s restrictions on crypto software and mining. This intervention forced many mining operations offline, causing widespread uncertainty
Characteristics of a Crypto Bear Market
Typical attitudes and behaviors of bears are:
Prices continue to fall;
Supply exceeds demand;
Investors lack confidence in the market;
Cryptocurrencies are not talked about (or talked about negatively) in mainstream and social media;
There is widespread distrust of cryptocurrencies among economists, analysts, and the traditional financial community;
lower highs when good news emerges;
Lower the lows in bad news situations.
Bull Market vs. Bear Market: Key Differences
So, the question a lot of people are asking is, how do you determine if it's a crypto bull or bear market? While both are largely marked by the direction of cryptocurrency prices, there are some key differences that investors can note. Bull and bear trends affect cryptocurrencies in much the same way as stocks.
However, with cryptocurrencies, the trends will be different due to the sensitivity of cryptocurrencies to volatility. Therefore, crypto markets tend to move faster once a bull or bear trend takes hold. Bull and bear markets are also easier to spot in stocks. This may not be the case for cryptocurrencies, as feedback given by crypto investors affects crypto differently compared to stocks.
For example, let’s say the crypto market is recovering from a bear market. Therefore, investors often enter bull market investor mode at the bottom of a bear market. Therefore, this will push cryptocurrency prices higher faster. Cryptocurrency bull markets tend to move quickly compared to stocks. They also tend to have a shorter lifespan, lasting only a few days to a month.
Then, as the bull market continues to gain strength, investors will then slowly decline as they may sell the currency and cash out. For this reason, bull and bear markets affect cryptocurrencies differently than stocks because they increase volatility and trading speed.
Some significant differences between bull and bear markets are:
supply and demand
In a bull market, demand for cryptocurrencies is strong amid weak supply. Many investors want to buy cryptocurrencies, but few are willing to give up. That pushed prices up further as investors rushed to buy up existing products.
However, in a bear market, more people are selling than buying (contrary to investing principles). Demand is lower than supply, causing prices to fall further.
market scenario
An increase in GDP indicates a bull market, while a decrease in GDP indicates a bear market. This is because GDP typically increases as company revenue increases and employee wages increase. Together, they contribute to increased consumer spending.
On the other hand, GDP falls when company revenues are weak and wages are low or stagnant. Therefore, a bear market is usually accompanied by a recession, in which GDP declines for two consecutive quarters.
economic impact
Bear markets are associated with a weak economy. When businesses miss revenue targets and consumers don't spend enough, profits fall and negatively impact the economy. The same attitude is reflected in cryptocurrencies and stocks, with people hesitant to trade or invest due to circumstances.
Bull markets, on the other hand, are associated with a strong economy, during which consumer spending is higher and profits are stronger. Trading stocks and cryptocurrencies also increases during bull markets.
Investor Outlook
Investor psychology and cryptocurrency market performance are closely related. Amid the bull market, rising cryptocurrency prices have further boosted investor confidence. Therefore, more investors are encouraged to invest in the market in the hope of making huge profits.
In a bear market, investor sentiment toward cryptocurrencies is typically negative. As a result, some people sell their holdings out of panic, pushing prices further down, and more investors take similar action.
stock price
Looking at current cryptocurrency prices is one of the quickest ways to determine whether the market is in a bull or bear market. Additionally, rising asset prices indicate market confidence and an upcoming bull market. Conversely, falling asset prices signal a lack of confidence and an impending bear market.
fluidity
Bull markets have higher liquidity and stocks can be traded at lower transaction costs as investors are confident of quick and stable returns. On the other hand, bearish markets are less liquid due to a lack of confidence in overall market conditions.
International Investment
Bull markets are characterized by sustained price increases. As a result, more investors are confident in the continued upward trend and are more willing to take risks. In contrast, falling prices in a bear market are also accompanied by a decline in investor confidence.
Talent Market
The unemployment rate is also closely related to changes in market trends. In a bull market, unemployment is falling as the economy becomes stronger and consumers gain more purchasing power. During a bear market, however, companies tend to lay off workers, driving up unemployment. This also tends to prolong bear markets because people earn less and companies earn less.
Is it better to buy in a bull market or a bear market?
Cryptocurrency traders often buy during bearish markets to capture lower cryptocurrency prices. Therefore, they have a higher chance of making substantial profits when a bull market occurs.
However, there are benefits to buying during a bull market. Buying during a bull market can contribute to an uptrend and therefore increase your profits as the market strengthens.
Both strategies come with risks, just like any other strategy in trading. So the key is to really be able to understand historical trends and stay up to date on cryptocurrency news. Whenever you invest in cryptocurrencies, you are likely to experience several bull and bear markets, so it is best to consider investing in both.
How to invest in a bull market?
When investing in a bull market, it's best to recognize the trend early so you can buy early too. Later, you can sell at a higher price when the market reaches its peak. Bull markets tend to last for long periods of time, so any losses are usually minor and temporary.
But what if things take an unexpected turn (such as a crisis or regulatory intervention) and you sense a bear market is emerging? In this case, the best strategy is to reduce your positions, especially in less mature cryptocurrencies. You may wish to temporarily move your assets into precious metals, cash, or similar assets. This is because they have a better chance of resisting a crash.
Cryptocurrencies also tend to sell at lower prices at the end of a bull market, so keep an eye out and take advantage of the possibility of increasing your investment.
How to invest in a bear market?
Investing in a bear market naturally involves more risk as prices are lower and investor confidence in cryptocurrencies is as low as zero. However, this risk also comes with the possibility of higher returns in the future. Therefore, you can buy cryptocurrencies when prices are low and sell them at the peak of the next bull market.
Another strategy used by investors is to sell existing holdings as soon as a downtrend is detected, then buy back those holdings at a much lower price as the market continues to fall.
There's no way to tell how long a bear market will last, especially if it's driven by a recession or something similar. The problem, therefore, is not knowing how long the decline will last and how much further the price can fall. As a result, you could buy too early or miss out on a good investment.
final thoughts
Bull and bear crypto markets are driven by a variety of factors. As we've discussed, the cryptocurrency market has fewer investors than the stock market and is more volatile, so there are some differences when considering trading during bull and bear markets.
Cryptocurrency investors often buy when prices are low during a bear market and hold on in order to make huge profits when the next bull market arrives. Professional traders still use a number of other strategies, such as looking for "rectangular patterns" during bullish trends.
A useful tip is to continue to observe market patterns from past bull and bear market trends. This can help you predict upcoming changes, or at least give you strategies for responding to changes in the market. Another good habit is to stay updated on the latest cryptocurrency news, as well as learn from the experts by reading their tips and tricks.
Whether you're investing in a bull market or a bear market, it's important to remember that there are always risks with every strategy. Therefore, we encourage you to conduct your own research to ensure you make the best decision for your specific circumstances.
If you want to read more about the basics of crypto, you can always check out our How to Crypto guide, which has tons of resources like this great beginner’s article on how to get involved in crypto.
We also have a wealth of material resources to delve deeper into the details of Bitcoin, Ethereum, Dogecoin, and more. Reading helpful resources will help you familiarize yourself with industry terminology, as well as the best strategies for dealing with different types of cryptocurrencies.