Given that the crypto market is generally volatile and fluctuates on a daily basis, these terms are used to refer to longer periods of either mostly upward or downward movement. Likewise, changes in markets are indicated by substantial swings (at least 20%) in either direction.
In this article, we’ll focus on how these trends apply to cryptocurrency. Specifically, we’ll discuss bull and bear market meaning, the drivers behind each, and the notable factors that characterize them.
Bull And Bear Market Meaning
What Is A Bull Market?
A bull market refers to generally favorable economic conditions. It means that a market is on the rise and is also usually accompanied by positive investor sentiments concerning the current uptrend. There is a sustained increase in asset prices in a bull market, accompanied by a strong economy and high employment levels.
This applies to cryptocurrency markets as well as traditional markets. In cryptocurrency, however, it is more common to see stronger and more consistent bull-run crypto phases. For example, a 40% increase in price over one to two days is quite the usual scenario. This is because crypto markets are relatively smaller than traditional markets and are, therefore, also more volatile.
Here, you’ll observe cryptocurrencies growing in value with generally favorable economic conditions and optimistic investors looking to make the most of their rising crypto portfolios. Briefly put, the investor starts bull markets through the purchase of securities. This can also be done with fiat currency, as bullish markets typically raise the price of securities. The bull market goes on for as long as supply is exceeded by demand. After a while, the bull gets tired, so to speak, and the market shifts and turns into a bear market.
What Is A Bear Market?
On the other hand, a bear market is one in which the value of cryptocurrencies has fallen by at least 20% and is continuing to fall. Bear markets lack the general optimism and confidence that most investors have during bull runs as the downward trend likewise affects investors’ outlook and perpetuates a further downward pattern.
The downward spiral causes more people to hold off on investments due to the belief that more bad news will come soon and that there’s a need to brace themselves for the worst. Prices also typically drop the moment the market receives news concerning unfavorable conditions regarding a particular cryptocurrency or stock. Some even sell their holdings out of panic, further creating a downward trend.
During a bear market, the economy is slow with high unemployment rates. These conditions can arise from poor economic policies, geopolitical crises, burst market bubbles and even natural disasters. But eventually, bear markets tend to calm down as investors slowly gain confidence, starting a new bull cycle yet again.
Causes Of Bull And Bear Markets
What Causes A Crypto Bull Market?
As previously mentioned, investors are the ones who begin a bull market. When they feel that prices will start to rise and continue doing so for an extended period, they start buying cryptocurrencies (at a low price) and are optimistic about their return on investment (ROI). The increased optimism among investors likewise causes crypto prices to continue rising.
There are also other factors that cause a bull market to emerge. Among these are a strong gross domestic product (GDP) and low unemployment rates. Generally, favorable market conditions cause an increase in investors’ confidence. Cryptocurrency bull markets are, likewise, influenced by similar factors to traditional markets.
However, crypto markets are still relatively new on the scene, compared with traditional securities which have been around for hundreds of years. With fewer total investors, crypto may also be driven by factors unique to its niche.
For example, crypto bull runs may be driven by things such as:
- Mainstream and pop culture support: Think of the 2017 bull runs influenced by the likes of Paris Hilton and DJ Khaled, and shows like The Big Bang Theory.
- Introduction of institutional capital: A good example is MicroStrategy’s $650M Bitcoin (BTC) investment (over 70,000 BTC).
- Growing optimism from traditional finance: JPMorgan strategists said Bitcoin could rally to as high as $146,000.
- Unique events that threaten traditional finance: COVID-19, for example, drove a lot of people to turn to crypto amid the stress caused by the pandemic on traditional financial markets.
What Causes A Crypto Bear Market?
A downward trend in pricing can typically cause a bear market to begin. As prices continue to drop, investors simultaneously lose confidence that prices will recover, resulting in further downtrends.
In general, things such as wars, political crises, pandemics and slow economies may trigger the start of a bear market. Government intervention may also cause a bear market to begin. In crypto, however, it’s much harder to predict when a bear market will start based on previous trends. Whereas the stock market already has decades of data for investors and analysts to refer to, the crypto market is relatively young.
While the causes of a bear market vary, there are a few common indicators that a bear market is going to start. Some of the indicators of an emerging crypto bear market are:
- Lower trading volume: This usually means that people have started to hold their coins due to uncertainty in the market.
- Negative sentiments from traditional finance: An example of this was when JPMorgan CEO Jamie Dimon called Bitcoin a fraud in 2017, just months before it reached $20,000 per unit and then crashed promptly.
- Death cross: A technical indicator pertaining to an asset’s crossing from a 50-day moving average to a 200-day moving average.
- Backwardation: 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 their excess reserves overnight.
- Intervention from regulatory bodies: An example of this is the Chinese government’s restrictions concerning crypto software and mining. Such interventions force a lot of mining operations to go offline, causing widespread uncertainty
Characteristics Of Bull And Bear Markets
Crypto Bull Markets
The typical attitudes and actions that characterize a bull market are:
- Increased prices over a sustained period of time;
- Strong demand despite weak supply;
- Increased investor confidence in the market;
- Overpricing of certain projects;
- Insertion of talks about cryptocurrency in mainstream media as well as social media;
- General interest in cryptocurrency among celebrities, influencers and other sectors who might not have been interested in crypto before;
- Hard rise of prices in the event of good news;
- A slight drop in prices in the event of bad news.
Crypto Bear Markets
- The typical attitudes and actions that characterize a bear market are:
- Decreasing prices over a sustained period of time;
- Supply is greater than demand;
- Lack of investor confidence in the market;
- No talk (or negative talk) of cryptocurrency in mainstream media as well as social media;
- General distrust in cryptocurrency among economists, analysts and traditional finance;
- Lower highs in the event of good news;
- Lower lows in the event of bad news.
Final Thoughts
Bull and bear crypto markets are driven by many factors. As we discussed, the cryptocurrency market is still fairly nascent and more volatile than the stock market, so there are a few differences to consider when trading or investing during bullish and bearish markets.
But regardless of whETHer you’re trading or investing during a bull or bear market, it’s important to remember that there are always risks associated with each strategy. As such, even after having learnt bull and bear market meaning, we highly encourage you to do your own and further research to ensure that you’re making the best possible decision given the circumstances.
