What Is a Bear And Bull Market in Cryptocurrency?

Stock traders often use the terms “Bull” and “Bear” markets in their conversations when discussing the appreciation of depreciation of stock assets in value. Since cryptocurrencies are also objects of speculation, bullish and bearish trends can also be observed in the digital asset scene. Let’s dive deeper into the essence of a bear and bull market in cryptocurrency.

What Is a Cryptocurrency Bear Market?

A crypto bear market in cryptocurrency indicates a period when the value of a given crypto asset falls drastically (by 20% or more) within a relatively short period and seems to continue falling in the near future. When prices are dipping, trading in a bear market can be very difficult because supply exceeds demand.

It is hard to predict when a bear market might end and when price bottoms will be reached, as a rebound is usually a slow and unpredictable process that can be influenced by many external factors, such as economic growth, investor psychology, and big events in the world. Traders and investors who make deals when the price is declining are called bears.

The term ‘bear’ is believed to originate from a bear’s fighting style — starting high, then attacking with its claws downward, applying all its weight to push the enemy down.

What Causes a Bear Market?

A downward trend in prices can usually lead to the start of a bear market. As prices continue to fall, investors simultaneously lose confidence that prices will recover, leading to further declines.

There is almost always a risk of the onset of a bear market when the economy enters a recession period. For example, the global coronavirus epidemic has triggered a bear market in crypto (which is preserved up to date) with widespread business closures, spiked unemployment rates, and increasing interest rates. There are many other factors that can lead to a bear trend in cryptocurrency markets, including:

• Political crises
• Massive health issues
• Government intervention
• High inflation
• Decrease in corporate growth

For most top crypto https://www.aax.com/en-US/top-cryptocurrencies/ investors, these negative indicators are the first signs to be on the lookout for a shrinking economy. Consequently, many crypto holders will begin to dispose of more volatile assets and invest in more stable assets such as precious metals or government bonds. Instead of trying to maximize profits, they will go into capital preservation mode.

When massive selling starts, the growth of the market slows down even more, causing anxiety among other investors or market participants. Thus, the more investors start to sell, the faster the demand for assets dries up, and the supply floods the market, causing further price declines.

Characteristics of a Crypto Bear Market

Typical characteristics of a bear market:

• Decrease in prices over a long period of time;
• Supply exceeds demand;
• Lack of investor confidence in the market;
• Lack of conversations (or negative discussions) about cryptocurrency in the mainstream media and social networks;
• General distrust of cryptocurrencies among economists, analysts and traditional finance;
• Lower highs in case of good news;
• Lower lows in case of bad news.

What Is a Bull Market in Cryptocurrency?

A bull market in crypto is a period during which prices are growing or are expected to grow remarkably in the nearest future. Favorable economic conditions inspire investors’ confidence in cryptocurrencies, making them buy digital assets more eagerly, which supports the bullish trend.

The term “bull market” is supposed to originate from the bull’s style of fighting where the animal attacks his enemies with his horns in an upward motion.

What Causes a Bull Market in Crypto?

A bull market is driven by growth in the economy, such as an increase in a country’s gross domestic product (GDP), rising employment levels, or a decrease in bank interest rates.

In addition to these quantifiable indicators, market sentiments (the general perception of the financial market) also have a big impact on the psychology of investors in certain market conditions.

When investors feel that prices will begin to grow and preserve a growing trajectory for an extended period, they start buying digital assets when their price is still low. Investors are confident about their return on investment (ROI). General optimism among investors causes crypto prices to keep on increasing in value.

In general, the bull market cycle is quite simple: when microeconomic indicators appear positive, investors are eager to buy. As more investors purchase a specific asset, its price goes up.

Characteristics of a Crypto Bull Market

• Steady growth of GDP
• Reduced unemployment rates
• Strong demand for assets among a limited supply
• Optimism among investors
• Positive asset coverage in media and social networks
• Significant rise in prices in case of good news;
• Unremarkable price reduction in case of bad news.

What Are The Main Differences Between A Bear Market And A Bull Market?

To have a clear understanding of bear vs. bull market trends in cryptocurrency, look at this comparison table:

What a Cryptocurrency Investor Should Do During a Bull And Bear Market?

Bullish and bearish tendencies are unavoidable in the cryptocurrency space, and all crypto holders have to learn how to handle these polar market movements.

In a bull market where optimism is high, cryptocurrencies users can usually benefit the most when they can recognize the trend in advance and buy the currencies of their interest in advance. This greatly increases the potential profit when other investors enter the market and push prices up. As a rule, bull trends last longer than bear markets, and market corrections in a bull market tend to be minimal and short-lived.

However, if macroeconomic conditions turn negative, resulting in a bear market, crypto users tend to reduce their positions or sell out completely assets. This is especially important for supporters of small (by market capitalization) cryptocurrencies and new projects as there is no guarantee that these digital assets will survive in a bear environment. In this case, many holders prefer to move their funds into less volatile assets during the impending bear market.

Although the bear market in crypto is characterized by massive asset disposals and dramatic value depreciation, some users prefer to buy cryptos exactly during the downward trend. They believe that a low price trend will eventually stop and the asset will increase in value over time, so that bears can sell their assets at a higher price than it was at the time of purchasing.

Despite a bear market in crypto may promise good earning opportunities in future, it is still hard to predict the duration of a bear trend, especially if it is driven by global economic factors or other external circumstances like the ongoing COVID-19 crisis or a lingering Russia-Ukraine military conflict. As a result, crypto users who follow this route may buy a certain asset prematurely while prices are still in a downtrend.

by Anna Koretskaya

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