The Difference Between A Bull and A Bear Crypto Market
In trading, it’s important to understand the basics: How it functions, and the jargon. With prices that can rise and fall in a matter of hours, more volatile than the stock market, the crypto market is an even riskier platform to trade in. Having better know-how in crypto trading terms can help you understand and manage your financial situation, with minimal risk of getting swayed by others’ opinions.
The terms, “bull” and “bear” or “bullish” and “bearish” have been used in the financial market since the 18th century. These terms are still relevant in today’s time, and even in the crypto market. But what do these quirky terms mean?
What Is a Bull Market?
In cryptocurrency, a bull market is when token prices are on the rise for several days, months, or years. The Bull market causes investor confidence to rise. In turn, prices increase due to the high demand for crypto.
A bullish market is a sign that the crypto market is growing, and can attract more investors to its potential.
What is a Bear Market?
A bear market is when prices continue to drop over time. Typically, it refers to a scenario in which widespread pessimism and unfavorable investor sentiment cause securities values to decline.
Examples of Bull and Bear Markets
To learn how to survive during a crypto Bull or Bear Market, we can draw lessons from the past. Here are a few moments in history that has shaped the underpinnings of the crypto market.
The well-known Japanese cryptocurrency exchange Coincheck suffered a breach in January 2018 and lost $500M. Co-founder Yusuke Otsuka stated that the business doesn’t know how the 500 million tokens disappeared. All withdrawals were put on hold, along with trading in any tokens other than Bitcoin and deposits into NEM currency. Data from Coinmarketcap showed that the price of XEM was $0.85, down from a high of $1.01.
The Terra network and its founder Do Kwon reached the peak of the cryptocurrency market before quickly falling apart within a short period in May 2022. Prices of Terra’s LUNA (now renamed as LUNC or Luna Classic) and UST tokens fell over 99.7%, hitting less than 10 cents, in the weeks after Terra’s collapse. The incident was one of the worst capital-damaging events in the history of cryptocurrency. At the same time, decentralized finance applications built on the network lost almost $28 billion in market value.
Bear markets can be traumatic, but as history has proven, the market does eventually recover.
You have the best opportunity to reflect during bear markets. You can only discover the difference between hype and long-term value through a stress test like a bear market.
Here are some examples of crypto Bull markets in the past.
On January 1st, 2017, Bitcoin officially reached $1,000 after years of price fluctuations. This started a celebratory bull cycle that year. The price of Bitcoin first crossed $2,000 in the middle of May and reached $3,000 a few weeks later. Despite regulatory crackdowns and erratic market drops, Bitcoin mostly kept rising, reaching an all-time high of $19,783.21 on December 2017.
People were concerned about price inflation on the U.S. dollar after the coronavirus pandemic crippled the economy. As a result, the price of Bitcoin began to climb more quickly making cryptocurrencies more appealing than other currencies. By December 2020, the price of Bitcoin has increased by more than 300% since January. In the same year, the price of Bitcoin reached an all-time high of $29,374.
How to calculate if the market is going Bull or Bear?
Not only does the market’s immediate response to an event determine whether it is bullish or bearish, but also how it performs over the long run. Trading opportunities might be discovered by analyzing various trends. It might be challenging to identify these trends, but here are the four primary crypto market phases to help you prepare when the market goes bull or bear.
Crypto Market Phases
- When investors believe that the worst is over and that the outlook for the economy is favorable, they start purchasing again. This is the beginning of a market cycle, commonly known as the “Accumulation phase”. In essence, value is high and prices are low.
- During the Markup phase, investors start to cryptocurrency prices once the market becomes more stable. This stage is simpler to spot, with the media and news outlets emphasizing the rising trend and investors reinvesting in the markets.
- Prices reach their highest point during the distribution phase. A relatively similar quantity of buying and selling is seen across the markets as the bull market that was driving prices upward gradually levels down.
- The final stage, known as the “Markdown”, is the downtrend frequently caused by mass selling as investors try to lock in profits and prevent substantial financial losses. An extended downward trend phase develops into a bear market.
The development of bull and bear markets in the crypto markets is influenced by a variety of factors. Compared to the stock market, the cryptocurrency market is younger, smaller, and more volatile with fewer investors. By having a thorough awareness of market trends and their key takeaways, and appropriately organizing your investments following the market direction, you can develop an investing strategy for when the market fluctuates or improves.
Following the latest economic news, being updated with financial trends, and studying the past Bull and Bear markets can guide you in forming an overall picture of your crypto investments.
Disclaimer: The information in this article is solely for educational and informational purposes, and should not be construed as investment advice.
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