Hey crypto friends,
You’ve likely heard about Bear Market and Bull Market, but might not fully grasp what they mean. So, grab a glass of water to stay hydrated and learn more!
But first… Where do the terms Bull and Bear come from?
It’s believed that the terms “bear” and “bull” derive from the way each animal attacks. Bulls thrust upward, thus the moniker represents a rising stock market. In contrast, bears hibernate, symbolizing a retracting market.
Bear Market
A bear market occurs when the prices of commodities, such as company stocks or resources like gold and oil, decline over a period. It’s generally considered a bear market when prices drop 20% or more from recent highs.
Essentially, a bear market is when things aren’t going well in the investment world, and everyone is a bit on edge. It’s like a rough patch in the investment roller coaster, but it’s crucial to remember that, like a rollercoaster, the market can rise again after a while.
Causes
A bear market can happen for various reasons, like when the economy isn’t doing well, companies aren’t making as much money, or there’s high unemployment. It could also stem from unexpected events, like a pandemic or war, causing people to panic and sell their stocks.
Sometimes, government actions, like changes in tax laws or interest rates, can impact the market. If people think these changes will make companies earn less, they might start selling their stocks, leading to price drops.
Characteristics of Bear Crypto Markets
Typical attitudes and actions characterizing a bear market include:
- Declining prices over an extended period;
- – Supply exceeds demand;
- Lack of confidence among enthusiasts in the market;
- Little to no (or negative) discussion about cryptocurrency in mainstream media and on social networks;
- General mistrust of cryptocurrencies among economists, analysts, and traditional finance;
Phases of a Bear Market
The first phase is marked by high prices and positive sentiment among enthusiasts. Initially, everything seems great. Stock prices are rising, and everyone’s excited. Enthusiasts are making money and feeling confident. At this stage, many people are buying stocks because they think prices will keep rising and want to share in the gains.
But then, in the second phase, stock prices start to drop rapidly, companies aren’t making as much money, and economic indicators aren’t as positive as before. People begin to panic, and many enthusiasts sell their stocks fearing further losses. This is known as “capitulation.”
In the third phase, after despair, some investors start seeing opportunities to buy stocks at low prices. They believe prices will rise again, so they start buying stocks hoping to profit when the market recovers. This causes some prices and trading volumes to increase slightly.
In the fourth and final phase, stock prices continue to fall but more slowly. Good news and low prices start attracting enthusiasts again, and the market begins to recover. People start buying stocks again, hoping prices will continue to rise. And that’s how a bear market can eventually lead to a bull market again.
Real-world Examples of Bear Markets
1. Mortgage Crisis (2007-2009): Many people couldn’t pay their mortgages, impacting the stock market. In October 2007, the S&P 500, an index tracking US company performance, reached a high point. But by March 2009, it had dropped significantly, reflecting how the mortgage crisis affected the overall economy.
2. COVID-19 Pandemic (2020): A more recent example is the COVID-19 pandemic. When it began, many countries had to shut down businesses, and people were afraid to spend money, causing the stock market to plummet. In March 2020, both the Dow Jones and S&P 500 entered a bear market because of this. Fortunately, the market recovered after these events, and prices started to rise again.
Investing in a Bear Market
When the market is down, it means cryptocurrency prices are lower than usual, and many enthusiasts are worried. This might seem scary, but it can also be an opportunity. Since prices are low, you can buy cryptocurrencies cheaper than usual, and if the market recovers in the future, you can sell them at a higher price. It’s like buying something on sale and then selling it at the normal price when things go back to normal.
Another strategy used by enthusiasts is to sell their cryptocurrencies when they see the market going down. Then, they wait until prices are even lower and buy back at a lower price. This is called “selling high and buying low.”
But remember, investing always involves some risk. There are no guarantees that prices will rise again or how long that will take. Therefore, it’s important to do careful research and be prepared for the risk when investing in a bear market.
Bull Market
As securities prices constantly fluctuate during trading, the term “bull market” is usually reserved for prolonged periods where a significant portion of security prices is on the rise. Bull markets can last for months or even years.
Causes
Talking about a bull market means the economy is doing well. It typically happens when a country is experiencing growth, unemployment is low, and companies are seeing higher profits. As businesses make more money, investors grow more confident and are more inclined to buy stocks.
During a bull market, people generally have a positive outlook on the stock market. They want to buy stocks believing their value will increase. And, as more people look to buy stocks, their demand increases. We can call these optimistic individuals “bulls,” who bet on the rising prices of Bitcoin and other cryptos, buying with the intention of profiting in the long run, as opposed to “bears” who hope for Bitcoin to fall to short sell.
Additionally, during a bull market, it’s common to see more companies conducting IPOs, offering shares to the public for the first time. This is because companies perceive an opportunity for profit when the market is bullish.
How to Leverage a Bull Market
Buy and Hold: One of the most basic investment strategies is buying a particular security and holding onto it, potentially to sell it later.
Increased Buy and Hold: This strategy is a variation of the straightforward buy and hold, involving additional risk.
Retracement Additions: A retracement is a brief period when the general price trend of a security reverses. Even in a bull market, it’s unlikely for stock prices to rise continuously. Instead, there may be shorter periods of small declines, even as the overall trend continues upward.
Bitcoin Halving Can Boost a Bull Market
The Bitcoin halving event, occurring approximately every four years, halves the reward miners receive for each block validated on the Bitcoin blockchain. This event is designed to control Bitcoin’s supply over time, making it a deflationary asset.
The reduction in block reward directly impacts the supply of new Bitcoins entering the market. With fewer Bitcoins being mined and introduced, supply diminishes, potentially leading to increased demand, especially if demand remains constant or grows. This can foster an environment conducive to a bull market, where Bitcoin prices tend to rise.
Enthusiasts often anticipate these events and their potential market impact, possibly leading to increased trading and investment activity before and after the halving. However, it’s important to remember that the cryptocurrency market is highly volatile and influenced by various factors, so there’s no guarantee a halving will automatically trigger a bull market. Nonetheless, historically, it has been a significant catalyst for Bitcoin price increases and investor entry into the market.
Real-world Examples of Bull Market
The 2009 Bull Market: This bull market started in March 2009 and lasted until February 2020, becoming the longest bull market in history. It was driven by strong profit growth, low-interest rates, and investor optimism, with the S&P 500 index gaining over 300%.
Use Klever in Both Situations
Download the Klever Wallet today and take control of your crypto journey. By adopting the right strategies and equipping yourself with the right crypto wallet, like Klever Wallet, you can more effectively navigate the volatile crypto market.
Remember, the goal isn’t just to survive a bear market or thrive in a bull market, but to build a resilient and diversified portfolio capable of weathering any storm and seizing opportunities in any market condition.
Klever – simplifying cryptography.
