The crypto market in 2020-2021 skyrocketed since Bitcoin broke its previous ATH of $20,000 to trade at over $60,000. Along with the massive price movement of Bitcoin, other cryptocurrencies had their time by growing in market cap. This state of the market is called a bull market when all numbers go onward for a period of time.
Bear and bull markets are popular terms in the financial markets, so it is important to understand their meaning to navigate the current market status instead of blindly throwing money into investments.
This article will explore what bear or bull markets are and how we should take action in each market condition.
What is Bear market?
A bear market gets its name from how a bear acts in the wild. Its claws, when swiping, make opponents down. In the financial market, a bear market is surrounded by drumbeats of negativities that decrease assets' value.
In a crypto bear market, asset prices often go down for a period of time. During this scenario, many investors tend to sell their cryptocurrency assets to cut intolerable losses. In addition, most leveraged investments and loans are liquidated to protect money lenders.
Notable traits of bear markets:
- Assets’ values decline: The most obvious trait of a bear market is when the value of assets plunges fast without upward movements. After a bull market, there will be a depression of assets. They will decline in value that can liquidate even top institutional investors.
For example, Three Arrows Capital was insolvent to pay loans because it owed money to other large investors. Forced selling due to misused leverage fuels the price depression.
- Investors’ confidence evaporates: Every investor comes to the market with different financial goals. Investors tend to withdraw funds when those goals are not fulfilled, leading to further value declines. Furthermore, hacks/exploits are more likely to occur during market selloffs, raising retail investors’ cautiousness with their money.
- Less positive narratives: Investors love following trends during bull markets since they can make the most out of their investments. However, a new trend is rare in bear markets since investors are more cautious with their own money. How can a trend surge without constant cash flow into the market?
What is Bull market?
A bull market gets its name from the behavior of a bull when its horns ascendingly attack to swoop obstacles up in the air. It means the public sentiment is positive, and investors might have profits by going long on assets.
Notable traits of bull markets:
Monetary policies: Money print with low-interest rates during the Covid-19 pandemic caused every financial market to boom. Investors used leverages by taking loans, and governments released multiple stimulus packages. Policy change is one of the most effecftive factors contributing to the price movements of any assets.
Positive narratives and trends: To gain the most out of investments during bull markets, investors often follow opportunities that draw lots of traction.
For example, in the second half of 2021, NFT/Gaming and Metaverse were the buzzwords that made a fuss among investors. Whoever followed the trend must have had considerable results. Besides that, IDO, Memecoin, and DeFi 2.0 had their spotlights in 2021. Narratives leave traces that we can track down and stick to.
How long can a bear or bull market last? Is anyone able to predict when a bull run comes? Let’s dive into these questions in the next section.
How long do crypto bull and bear markets last?
In the crypto space, Bitcoin is the beacon that guides the market. It often makes price movements before other cryptocurrencies or altcoins since Bitcoin is the largest crypto in terms of market cap. As a result, Bitcoin will decide whether the crypto market is bullish or bearish.
Let’s look at the historical price of Bitcoin and glean some data about bull and bear markets. Occasionally, bear and bull markets last 1-3 years. It is not enough data sample to be affirmative about whether a bear market can last longer or end sooner than a bull one. It depends on the selected interval when positive sentiments dominate other negative ones.
Despite its cyclical nature of corrections, the Bitcoin price is designed to go up over time. The Bitcoin price often makes a new ATH after breaking the previous one, which fuels positive sentiments of a bull market.
There has been a controversy about whether the crypto market is correlated with the traditional ones like stocks or commodities. Their sentiments somehow coincided under the same recession or a bull run scenario.
The transition between a bear market and a bull market is not visible. It is a real challenge to identify the dominating sentiment during the market transition. Some investors might sense that it is the market top of a bear market, while others still believe in a more aggressive bull run.
Trying to predict when a bull market begins is much harder than it looks. What we should do is position ourselves as long-term investors with long-term visions.
What should we do in Bull and Bear market?
In a bear market
During bear markets, most investors leave since they are unable to make money. Furthermore, prices of financial assets tend to decline fast due to bad sentiments, resulting in investment losses. Since a bear market might last long, we have time to sit down and reschedule what we should do to achieve our goals.
Learn from losses: In a bear market, you might lose a lot of money due to reckless investments. Your capital is burnt down fast, and you might be thirsty for opportunities. This is where we are at our weakest hours, and it is hard to overcome realized losses. Investors will ask whether we should double down on investments or not. Does the bear market end? They are all tough questions that will be worth a significant sum of money if we know the correct answers. Lesions should be learned.
Earn a living: In a bear market, investment opportunities are scarce, and the risks of losing money are high. Despite that, there are always cryptos or specific classes of assets that grow in value. To survive through “a crypto winter”, we should at least earn a living by having enough cash or income for casual needs. Being insolvent is the worst financial status that an individual can have.
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Prepare for the next circle: It is hard to time any financial markets, especially the crypto market. Nobody is able to predict precisely the time when the bull market will come. We will only know it is a bull market if we live in an exact one. If we are investors with strong convictions, we should prepare knowledge and capital for the next run. Opportunities are ahead of us.
Become conscious investors: During bear markets, there are countless negative narratives as well as rivers of fake news of which we should be aware. Avoiding panic selling is harder than said. If the price goes down, we will feel so lucky for selling. On the other hand, we might have greedy feelings due to missed opportunities. It is essential to train a correct mindset to make proper decisions.
Join and build something: If you plan to get a full-time job in crypto, it is high time to start building in a bear market. Joining a DAO or getting a full-time job are good ideas to start a crypto career. At the moment, there are many open positions for everyone with different backgrounds besides developers.
Above are some suggestions about what we should do in a bear market. Most of the time, the market is bearish, which can last several years or end sooner than expected.
In a bull market
As mentioned earlier, a bull market is when investors are active the most. The value of assets and numbers of indicators skyrocketed at a fast pace. We should catch the waves with comprehensive knowledge to generate profits in bear markets.
Every investor comes to the crypto market or other financial ones with different goals and objectives. They are like the beacons, so investors do not get lost due to distractions such as unreasonably high-yield investments. Rational targets with strong convictions give investors an edge.
A bull run does not mean it is risk-free. A new ascending market like the crypto space contains numerous risks such as hacks, exploits, forced selling due to overleverage, etc. Before placing any investments, you should do your own research since market factors directly affect the investment outcomes.
FAQs about Bull and Bear market
Will the next bull market of crypto never come?
The historical price of Bitcoin states that it has been around since its inception in 2019. After going through many turbulent years, Bitcoin is now trading at a 5-figure price of dollars, updated on July 22nd, 2022. Depending on the historical data of Bitcoin, the crypto market is cyclical, and bears and bulls will have their dominant time.
Bear/bull market vs. corrections
Corrections are minor price drops that are more than 10% and often less than 20%. In the crypto space, a bear market can cause the Bitcoin price down by over 80%. Therefore, it is easier to say bear and bull markets have corrections along the way.
Bull or bear markets are indispensable to financial markets, including stocks, commodities, and cryptocurrencies. To determine the current market state, we use traits like market sentiments, macroeconomics, investors’ confidence, etc.
Furthermore, bear and bull markets are cyclical in the crypto space, and a full crypto circle is around 2-4 years. In addition, we should adjust the behaviors based on the current market state. To reiterate, bull or bear markets are must-known terms for investors.