Bull and Bear Market – What does it have to do with Crypto?
Frequently, you'll encounter expressions such as 'bull' and 'bear' used in diverse situations to characterize the condition of financial markets. Essentially, a bull market signifies favorable market conditions, while a bear market denotes the opposite.
But what exactly defines a bull or bear market? Are we currently witnessing a bear market in the crypto sphere? And why the animal-themed labels? You will see everything related here, in this Blog.
What are Bear and Bull Markets and Where do Names come from?
In technical terms, a bull or bear market materializes when asset prices sustain an extended period of elevation or depression, respectively. Typically, it's not officially recognized as a bona fide bull or bear market unless the upward or downward movement reaches 25% or beyond.
Where does the Bull Market come from?
The origin of the term 'bull market' is believed to stem from the upward trajectory resembling the motion of a bull's horns during a charge and attack. During a crypto bull run, prices surge, exuberance peaks, and the arrow on price charts unmistakably points upward (affectionately known as 'line go up'). The term is deeply ingrained in the financial world, epitomized by a colossal bronze bull statue proudly standing in Manhattan's Financial District since 1989.
At the Bitcoin 2022 conference in Miami, a similarly imposing robotic bull statue made its debut, paying homage to the original while symbolizing a shift in the global finance landscape.
Where does the Bear Market come from?
In contrast, a bear market is thought to derive its name from the downward motion reminiscent of a bear's claw strikes. Another prominent theory traces the term back to a 16th-century proverb cautioning against selling a bearskin before catching the bear.
By the early 18th century in England, the term 'bearskin' became synonymous with speculative stock buying, a practice now known as short-selling.
What does Bear Market mean in Crypto?
In a crypto bear market, investors experience a sense of unease. Confidence dwindles, and both prices and demand witness a decline. While nobody welcomes a bear market, it often unveils buying opportunities once the turbulence settles. Following the establishment of price bottoms, investor interest tends to resurface, marked by a rush for assets perceived as undervalued. This pattern is a recurring theme, as a significant crypto bull run has traditionally succeeded each major bear market in recent history.
When crypto investing sentiment turns 'bearish,' it signifies not just the departure of newcomers and those with less commitment, but even the steadfast HODLers are feeling the pressure. A bear market is marked by a pervasive lack of investor confidence and a negative outlook on asset prices. Prices nosedive alongside dwindling demand, and previously thriving coins or projects can resemble virtual ghost towns as their user base takes a hiatus during the downturn.
How to Spot Signs of a Bear Market?
During a crypto bear market, it's probable to observe one or more of the following:
- Prolonged declines in prices.
- A decline in the demand for assets.
- Diminished confidence among investors.
- A surge in exaggerated media coverage discussing 'crypto winter’ or 'crypto apocalypse’.
Why do Bear Markets happen in Crypto?
While optimism fuels a bull market, fear becomes the prevailing currency in a bear market. Various triggers, ranging from global crises like wars or pandemics to government restrictions on crypto or regulatory warnings of impending crackdowns, can initiate bear markets.
Given the hype-driven nature of crypto market cycles, the snowballing of bad news or negative sentiment can set off a cascading effect, rapidly driving prices significantly lower.
What does Bull Market mean in Crypto?
In the midst of a crypto bull run, corks are popping, Lambos are flying off the shelves, and it's as if we're all strapped to a rocketship bound straight for the moon. That's the vibe, at least. Unlike the more gradual movements of stock prices, crypto prices can experience significant jumps.
While a 25% increase in a company's share price over weeks or months may make waves in traditional finance, a crypto bull run might see a staggering 50% surge in a matter of days.
In the realm of crypto investing, being 'bullish' signifies an optimistic investor sentiment toward digital assets, and those holding this outlook are often dubbed 'bulls.'
Bullish investors typically augment their current positions, anticipating the sustained momentum. With high confidence that can be quite contagious, this positive sentiment has the power to propel a bull market even further.
What are the Signs of a Bull Market?
Discerning a crypto bull market involves noting several distinctive characteristics:
- Continued upward price trends.
- A gradual rise in the demand for assets.
- A surge of new investors entering the markets.
What causes the Bull Market in Crypto?
While investor optimism, driven by the anticipation of profit, remains the primary catalyst for a bull market, various internal and external factors also contribute. In traditional markets, a robust economy with low unemployment and strong GDP growth sets the stage for a flourishing bull market. However, in the distinctive realm of crypto, the dynamics differ. Celebrity endorsements, manifested through tweets supporting crypto projects, have been known to initiate bull runs.
Expressions of confidence from the traditional finance sphere, such as Goldman Sachs' reiterated Bitcoin prediction of $100,000, wield influence in propelling digital asset prices upward. Additionally, the introduction of new crypto products by major financial institutions, like exchange-traded funds (ETFs) or crypto trusts, serves as a signal for positive momentum, further piquing investor interest.
Bulls and Bears in Crypto – a sign of up and down trends
Attempting to time the market is often a futile pursuit, making the prediction of the onset or conclusion of a bull or bear market equally challenging. This challenge is accentuated in the realm of crypto, where asset prices are susceptible to significant fluctuations in short timeframes. The unyielding reality is that bull and bear markets are inherent aspects of the investment landscape.
The key lies in early recognition and strategic moves, whether to soften the impact during bearish phases or capitalize on the opportunities when the bulls take the lead.