Sometimes, the market gets so crazy that it almost feels like a jungle. In fact, trends can be so drastic that experts even have terms for how the market acts: bullish and bearish. At first, you may think that these are complicated terms that only stock traders have knowledge about. But bull and bear markets are actually simple concepts that even people with no trading experience can easily understand.
Knowing all about bullish or bearish markets is also the key to understanding the highly volatile cryptocurrency market. To put it simply, bullish markets experience constant and substantial growth while bearish markets experience steady declines. Think of how a bull acts compared to a bear: a bull attacks upward with its horns raised while a bear attacks by clawing down with all of its weight.
To help you understand these two concepts better, here’s a quick rundown of what you should know about bullish and bearish markets.
What Is a Bullish Market?
In crypto, a bull market cycle occurs when there is a strong demand and a weak supply. This eventually results in high prices that are sustained over a period of time. Bull markets also experience an increase in investor confidence, leading to more trading activities as well as high liquidity.
Dynamic trading activities and positive market sentiment also spur discussions around crypto in social media as well as mainstream media, inviting high-profile figures and average people to jump on the hype. With increased talk about cryptocurrencies like Monero for example, there will also be new products on the market such as a specialized XMR wallet that is designed to provide additional support to enthusiasts.
This increase in crypto trading interest also causes a “bull run,” where more investors are buying cryptocurrencies over an extended period. A common bull run scenario in crypto results in a 40% increase in prices over 1-2 days. The pervading philosophy for this kind of market is to sell high while it lasts.
What Is a Bearish Market?
In contrast to a bullish market, a bearish market is characterized by a downward trend over a short period of time. Prices start to drop substantially during a period of bearish market activity. Investor confidence is low and supply is higher than demand. A bearish period also results in a distrust of cryptocurrencies, leading to an overall negative market sentiment. A typical bear market scenario is when there’s a 20% decrease in prices for at least 60 days.
Experts note that it is hard to predict the end of a bear market or when prices have hit rock bottom. This crypto downward spiral is exacerbated by people panic-selling their assets or avoiding investments.
The common philosophy in bear markets is to buy low or “buy the dip” while prices are at an all-time low. However, this could be a gamble for investors as they cannot predict if a currently low-value crypto will eventually recover.
Causes of Bull and Bear Markets in Crypto
Investors serve as the main catalysts of bull markets in crypto. Influential people as well as traditional institutions can convince a large number of people to place their trust in cryptocurrencies, reinforcing a positive feedback loop that feeds a bull market.
Because crypto is a relatively niche area in trading, its internal landscape plays a key role in instigating both desired and unwanted market activity. However, external factors such as GDP growth and low unemployment can also lead to bullish markets by enabling the general public to lean towards consumerist behavior through a higher purchasing power, therefore, giving them a higher capacity to participate in crypto trading.
It’s hard to boil down the causes of a bear market, but there are common trends that often predict the occurrence of a downward market trend. One of these is a consistent dip in trading volume, which is further worsened by people holding off on trading due to market uncertainty. Traditional finance institutions’ negative outlook on crypto is also a key contributor to bearish market activity.
Regulatory intervention is another cause of low trading activity, with government-led crypto crackdowns in some countries leading to higher supplies with lesser demand.
Taking Advantage of Both Markets
The secret to taking advantage of bullish markets is foresight. When you anticipate the advent of a bull market trend, it’s best to buy early and start selling when prices hit their peak. You may want to secure your assets temporarily by cashing out or moving them to other sources once you see a bear market on the horizon. Cryptocurrencies, especially the proven ones, usually experience a dip in prices towards the end of a bull market phase. Buying in will potentially let you double or triple your investments once the bear market hits.
You may think that trading during a period of a downturn is risky, but doing it the right way will actually lead to potential advantages. Once the cycle approaches a bull market again, your bear-market buyouts will pay off in the long run. There are also price spikes that happen temporarily during a bear market phase, and it’s something to keep in mind for short-term payouts.
Natural Market Instincts
Crypto trading will always have a certain degree of risk regardless of how good or bad the landscape is. Whether the market is a bear or a bull, there will always be a way to either bounce back or go higher. All you need is a little intuition, some luck, and the guts to take financial risks.