Up or Down: All You Need to Know About Bull and Bear Markets
The crypto market is subjected to significant fluctuations every day, but there are periods when asset prices constantly grow up or down. These are trends that characterize the cryptocurrency market over a certain period of time.
Let’s talk about the meaning of these trends, their features, and differences.
A bull market
A bull market is an uptrend primarily characterized by favorable economic conditions. This is a period of rising when investors’ confidence in the market strengthens, and prices of digital currencies increase.
Unlike the traditional financial sector, the increase in cryptocurrency prices is more rapid. A 40% growth in a few days is completely normal for the crypto market. Yet, increasing prices by 2-3 times is also possible, especially regarding popular cryptocurrencies.
The bullish trend continues as long as the demand exceeds the supply. Moreover, investors are investing in the industry even more due to the high confidence in the market. Eventually, it allows prices to continue their increase.
What can cause a bullish trend?
- Interest from celebrities (likes, tweets, comments of public people in favor of any cryptocurrency). This is exactly what happened with Dogecoin when, after one tweet, its price rose by 14% in just 2 hours.
- News about investments in cryptocurrencies made by large companies. For example, Tesla has already invested more than $2 billion in Bitcoin. For such companies, this is not only an opportunity to attract attention, but also a tool for hedging risks.
- Positive forecasts from traditional finance analysts.
- Events that threaten the traditional finance sector (pandemic, war, etc.).
The growth periods aren’t constant, and because of the high volatility, not all traders manage to make significant profits during a bullish trend.
In the end, the bull market gradually turns into a bear market, which we will explain below.
A bear market
This is a downtrend in which the market confidence is decreasing, and the prices of most cryptocurrencies are constantly falling (by 20% or more). Like the rise, the fall is also rapid. Crypto holders don’t understand whether the coin will return to the previous price. Hence, they are afraid to buy it at a low cost, contributing to the continuation and intensifying of the trend.
In a bear market, the supply greatly exceeds the demand.
What can cause a bearish trend?
- Weak economies.
- Bad news about one cryptocurrency. This entails fear and apprehension about the appearance of similar news in the future.
- War, pandemic, natural disasters.
- Government or regulatory intervention.
- A decrease in trading volume that occurs due to users’ fear of market uncertainty.
- Negative sentiment in the traditional financial market. For example, due to only one statement, the price of Bitcoin decreased several times in 2017.
- Backwardation (happens when the price of the underlying asset in the futures market is less than the current spot price).
The bearish trend is also not permanent, although it can be long-lasting. It can last a couple of weeks and even a couple of months. After that, the market gradually goes into a period of growth. And so one trend replaces another.
Differences between bull and bear markets
Both trends are the two sides of the same coin. They differ in:
|Bull market||Bear market|
|high demand despite low supply||low demand despite high supply|
|high liquidity||low liquidity|
|high level of trading||low level of trading|
|high investor confidence||low investor confidence|
|increase in investment||decrease in investment|
|talks about cryptocurrency in the media and social networks||lack of talks on social networks and media|
|general interest in cryptocurrency among celebrities, influencers, and other sectors who may not have been interested in it before||general distrust of cryptocurrencies among specialists and from the traditional finance industry|
|significant price increase in case of good news||in the case of good news, prices of cryptocurrencies hit a lower maximum|
|slight price drop in case of bad news||with bad news, cryptocurrency prices hit a lower low|
|prices increase for a long time||prices drop for a long time|
Although all of these factors are inherent in a bull or bear market, knowing them isn’t enough for predicting such periods on your own.
To understand how the cryptocurrency market works, you need to constantly learn to identify patterns and follow world news and statements made by celebrities. And the ability to work with financial instruments comes with experience.
So, keep learning. Good luck!