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Bull vs. Bear Crypto Market: What’s the Difference and How to Handle Both

Bull vs. Bear Crypto Market: What’s the Difference and How to Handle Both

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“Bull” and “Bear” are commonly used to describe the performance of stock markets, whether they are appreciating or depreciating in value? In this context, a rising market is called a bull market, while a declining market is called a bear market.

Since the crypto market is generally volatile and fluctuates on a daily basis, these terms are used to refer to longer periods of mostly up or down movement. Also, changes in the markets are indicated by substantial swings (at least 20%) in either direction.

In this article, we will focus on how these trends apply to cryptocurrencies. Specifically, we will discuss: What is a bull or bear market? What characterizes bull markets versus bear markets? How to know if we are in a bullish or bearish crypto market? The key differences between the bull and bear market, and how to invest in a bear or bull market.

What is a bull market?

A bull market refers to generally favorable economic conditions. It means that a market is on the up and is also often accompanied by positive investor sentiments regarding the current uptrend.

There is a sustained rise in asset prices in a bull market, accompanied by a strong economy and high levels of employment. 

This applies to both cryptocurrency markets and traditional markets. In cryptocurrencies, however, it is more common to see stronger and more consistent bullish crypto phases. 

What is a bull run in crypto typically like? A 40% increase in price over a day or two is a fairly common scenario. This is because crypto markets are relatively smaller than traditional markets and therefore more volatile as well.

The term “bull market” is believed to have originated from the fighting style of a bull, in which it attacks its opponents with its horns in an upward motion. Today, a “bullish” market or investor generally connotes optimism about the continued rise in value of an asset. 

In the cryptocurrency market, the charging bull heralds a bullish phase for cryptocurrencies. Here, you will watch cryptocurrencies rise in value with generally favorable economic conditions and optimistic investors looking to make the most of their growing cryptocurrency portfolios.

Simply put, the investor initiates bull markets by buying securities. This can also be done with fiat currency, as bull markets often increase the price of securities. The bull market continues as long as demand exceeds supply. After a while, the bull gets tired, so to speak, and the market turns and becomes a bear market. 

What causes a bull market?

As mentioned above, investors are the ones who start a bull market. When they feel that prices will start to rise and will continue to do so for an extended period of time, they start buying stocks (at a low price) and are optimistic about the return on investment (ROI). Increased optimism among investors is also driving share prices higher.

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 investor confidence. Cryptocurrency bull markets are also influenced by similar factors as traditional markets. 

However, crypto markets are still relatively new on the scene, compared to traditional securities that have been around for hundreds of years. With fewer total investors, cryptocurrencies can also be driven by factors unique to their niche.

For example, crypto bullfights can be fueled by things like:

  • Support for mainstream and popular culture: Think of 2017 bullfights influenced by the likes of Paris Hilton and DJ Khaled, and shows like The Big Bang Theory.
  • Introducing institutional capital: A good example is MicroStrategy’s $650 million Bitcoin (BTC) investment (over 70,000 BTC).
  • Rising Optimism From Traditional Finance: Strategists at JPMorgan said Bitcoin could rally as high as $146,000.
  • Unique events that threaten traditional finance: COVID-19, for example, led many people to turn to cryptocurrencies amid the stress caused by the pandemic in traditional financial markets.

Characteristics of a Cryptocurrency Bull Market

The typical attitudes and actions that characterize a bull market are:

  • rising 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 cryptocurrencies in the main media, as well as in social networks;
  • General interest in cryptocurrencies among celebrities, influencers, and other sectors that may not have been interested in cryptocurrencies before;
  • Strong price increase in case of good news;
  • Slight price drop in case of bad news.

What is a ‘bull run’ in crypto?

A bull run refers to a prolonged period during which many investors buy cryptocurrencies. It is characterized by the characteristics mentioned above, such as rising prices, demand that exceeds supply, and high market confidence. 

Investor confidence typically creates a positive feedback loop, further extending the bull run (more investment, continued price rise). In the case of cryptocurrencies, more especially, the price of a certain cryptocurrency is greatly influenced and driven by public confidence in an asset.

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 still falling. An example includes the famous cryptocurrency crash in December 2017, when investors saw Bitcoin drop from $20,000 to $3,200 over the course of a few days. 

A declining bear market is characterized by a decline of 20% or more from previous highs. As such, prices are low and continually falling. The downtrend also affects investors’ outlook and perpetuates a new downward pattern. The term ‘bear’ is thought to come from a bear’s fighting style: it starts high, then claws downward, all of its weight pushing down.

During a bear market, the economy is slow with high unemployment rates. These conditions can arise from poor economic policies, geopolitical crises, stock market bubbles, and even natural disasters. 

Bear markets also lack the general optimism and confidence that most investors have during bull runs.

Typically, cryptocurrency traders aim to buy assets during a bear market, especially during the bottom. However, it can be difficult to know exactly when a bear market has ended, making it difficult for investors to gamble and buy low-value cryptocurrencies that may or may not recover.

Prices typically drop at the time the market receives news of unfavorable conditions regarding a particular cryptocurrency or stock. The downward spiral causes more people to delay investments due to the belief that more bad news is coming soon and that it is necessary to prepare for the worst. 

Some even panic-sell their holdings, further creating a downtrend. Bear markets tend to die down over time, and investors slowly gain confidence, starting a new bull cycle once again.

What causes a cryptocurrency bear market?

A downward trend in prices can usually cause a bear market to begin. As prices continue to fall, investors simultaneously lose confidence that prices will recover, leading to further downward trends. 

In general, things like wars, political crises, pandemics, and slow economies can trigger the start of a bear market. Government intervention can also cause a bear market to begin. In crypto, however, it is much more difficult to predict when a bear market will begin based on past trends. While 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 some common indicators that a bear market is about to begin. Some of the indicators of an emerging crypto bear market are:

  • Lower trading volume – This usually means that people have started to hold onto 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 a few months before it hit $20,000 a piece and then quickly crashed.
  • Death Crossing: A technical indicator related to the crossover of an asset from a 50-day moving average to a 200-day moving average.
  • Backwardation: When the price of an asset in the futures market is lower than the current market price.
  • Changes in the fed funds rate: the rate at which banks lend/borrow their excess reserves overnight.
  • Intervention of regulatory bodies: An example of this is the restrictions of the Chinese government regarding cryptographic software and mining. Such interventions force many mining operations to go offline, leading to widespread uncertainty

Characteristics of Crypto Bear Markets

The typical attitudes and actions that characterize a bear market are:

  • falling prices over a sustained period of time;
  • Supply is greater than demand;
  • Lack of investor confidence in the market;
  • Do not talk (or talk negatively) about cryptocurrencies in the mainstream media, as well as on social networks;
  • General distrust in cryptocurrencies among economists, analysts and traditional finance;
  • Lower highs on good news;
  • Lower minimums in case of bad news.

bull market vs. Bearish: Key Differences

So the question a lot of people ask is, how do you determine if it’s a bullish or bearish crypto market? Although both are largely driven by the direction of cryptocurrency prices, there are key differences that investors can take note of. The effect that bullish and bearish market trends have on cryptocurrencies is generally the same as stocks.

However, with cryptocurrencies, the trends differ due to the susceptibility of cryptocurrencies to fluctuations. As such, crypto markets tend to move faster as soon as bullish or bearish market trends take hold. Bull and bear markets are also easier to spot in stocks. It may not be the case for cryptocurrencies as crypto investors give feedback that affects cryptocurrencies differently compared to stocks.

For example, let’s say the crypto markets are recovering from a bear market. As such, an investor would typically go into bullish investor mode at the bottom of a bear market. Consequently, this will cause the prices of cryptocurrencies to rise much faster. Crypto bull markets tend to move quickly compared to stocks. They also tend to be shorter-lived, lasting only a few days to a month.

Then, as the bull market continues to strengthen, investors will slowly decline because they are likely selling the coin and cashing out. For this reason, bull and bear markets affect cryptocurrencies differently than stocks due to their added volatility and speed of trades. 

Some of the notable differences between bull and bear markets are:

Supply and Demand

In a bull market, the demand for cryptocurrencies is strong amid weak supply. Many investors want to buy cryptocurrencies, but few are willing to part with them. This drives prices even higher as investors compete to buy what is available.

However, in a bear market, more people sell than buy (unlike the investment principle). Demand is less than supply, which drives prices down even more. 

Market Scenario

Rising GDP marks the beginning of a bull market, while falling GDP signals the emergence of a bear market. This is because GDP typically rises along with rising business revenues and rising employee wages. Together, they enable an increase in consumer spending. 

On the other hand, GDP falls when business revenues are weak and wages are lower or stagnant. As such, bear markets often accompany economic downturns, with GDP declining for two consecutive quarters. 

Impact on the economy

A bear market is linked to a weak economy. When businesses don’t meet revenue targets and consumers don’t spend enough, profits decline and negatively affect the economy. The same attitude is reflected in cryptocurrencies and stocks, where people are hesitant to trade or invest due to circumstances.

On the other hand, a bull market is linked to a strong economy, during which consumer spending is higher and profits are more significant. Stock and cryptocurrency trading also increases during bull runs.

Investor Perspectives Investor

psychology and crypto market performance are closely related. In a bull market, rising cryptocurrency prices further increase confidence among investors. As a result, more investors are encouraged to place their investments in the market in the hope of making a good profit.

In a bear market, investor sentiment towards cryptocurrencies is generally negative. As such, some are panic selling their holdings, driving prices even lower and causing more investors to follow suit.

Stock Price

Observing current cryptocurrency prices is one of the quickest ways to determine if one is in a bull or bear market. Also, rising asset prices indicate confidence in the market and an impending uptrend. Conversely, falling asset prices indicate low confidence and an incoming bear market.

Liquidity

A bull market is more liquid, in which stocks can trade at lower transaction costs due to investors’ high reliance on fast and consistent returns. On the other hand, a bear market is less liquid due to a lack of confidence in general market conditions. 

International Investments

Bull markets are characterized by sustained price increases. As such, more investors have faith in the sustained uptrend and are more willing to take risks. Conversely, falling prices in a bear market also leads to lower investor confidence.

Labor market

Unemployment rates are also closely related to changes in market trends. In a bull market, unemployment rates are falling amid a stronger economy and better purchasing power among consumers. However, during bear markets, companies tend to reduce the number of employees, which raises unemployment rates. This also tends to prolong a bear market as people earn less, businesses earn less as well.

Is it better to buy in a rising or falling market?

Cryptocurrency traders often buy during bear markets to benefit from lower cryptocurrency prices. As such, when bull markets emerge, they stand a better chance of making a solid profit. 

However, there is also a benefit to buying during a bull market. Buying during bull markets can contribute to the uptrend and therefore can also boost your profits as the market strengthens. 

Both of these strategies carry risks, just like any other tactic in trading. Therefore, the key is to be able to really understand historical trends and stay up-to-date with cryptocurrency news. You are likely to come across a couple of bulls and bears while trading cryptocurrencies, so it is best to consider investing in both. 

How to invest in a bull market?

When investing in a bull market, it is always best to recognize the trend early on so you can buy early as well. Later, you can sell at higher prices just as the market is peaking. Bull markets tend to last a long time, so losses are usually minor and temporary. 

But what if things take an unexpected turn (such as a crisis or regulatory intervention) and you feel a bear market emerging? In this case, the best strategy is to reduce your positions, especially those in less proven cryptocurrencies. You may wish to temporarily move your holdings to precious metals, cash, or similar assets. This is because they have a better chance of withstanding a crash. 

Cryptocurrencies are also often available at lower prices at the end of bull markets, so be on the lookout and take advantage of the opportunity to increase your investments.

How to invest in a bear market?

Investing in a bear market naturally involves more risk as prices are lower and investors have little or no confidence in cryptocurrencies. However, this risk also comes with the possibility of higher returns in the future. As such, you can buy cryptocurrencies when they are at lower prices and sell them at the peak of the next bull market.

Another strategy investors use is to sell their existing holdings as soon as they spot downtrends, and then buy these holdings back later at a much lower price as the market continues to fall. 

There is no way of knowing how long a bear market will last, especially if it is driven by a recession or similar circumstances. So the problem is not knowing when exactly the drop will last and how much further prices may fall. As a result, you may make a premature purchase or lose a good investment. 

final thoughts

are driven by many factors. As we discussed, the cryptocurrency market has fewer investors and is more volatile than the stock market, so there are some differences when considering trading during bull and bear markets. 

Crypto investors often buy when prices are low during bear markets and hold on to them so they can make a nice profit once the next bull market hits. There are still tons of other strategies that professional traders use, like looking for the “rectangle pattern” during uptrends.

A useful trick is to keep watching past market patterns of uptrends and downtrends. This can help you predict the next ones, or at least give you strategies to navigate changes in the market. Another great habit is to stay up to date on the latest cryptocurrency news, as well as learn from the experts by reading their tips and tricks. 

Whether you’re investing during a bull or bear market, it’s important to remember that there are always risks associated with every strategy. As such, we encourage you to do your own research to ensure you are making the best decision possible under the circumstances. 

In case you want to read more about the basics of crypto, you can always check out our How To Use Crypto guides which contain great resources, like this great article for beginners on how to get involved with crypto.

We also have a rich resource of materials that delve into the details of Bitcoin, Ethereum, and Dogecoin, among others. Reading helpful resources will help you get familiar with industry terms as well as the best strategies for dealing with different types of cryptocurrencies. 

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