Crypto Bull Market vs. Bear Market: An Overview

Noah Fields
Noah Fields

Crypto Bull Market vs. Bear Market: An Overview
Table of Contents
Table of Contents

While there are different terms used to describe the market depending on its state at any given time, the crypto and finance world uses “bull” and “bear” to define prolonged market conditions.

What Is a Bull Market?

A bull market is a condition where asset prices increase over an extended period. Markets or assets may also be considered bullish when there is an expected price increase in the short term. Bull markets have high optimism, community confidence, and expectations that asset prices will continue to rise into the near, medium, and potentially even long-term future.

There is no specific metric used to identify a bullish market. However, analysts generally consider a market bullish when asset prices rise 20% from their most recent low, with signs that the increase will continue.

What Causes a Bull Market?

A bull run or bull market usually begins when buyers believe that prices will increase and remain high. This can spur from fundamental or technical analysis, as well as overall market sentiment. The increased optimism from these buyers prompts other participants to buy into the market for increased potential ROI (return on investment), eventually spiking asset prices.

There are other factors that cause a bull market to emerge in traditional finance. These include a strong GDP (gross domestic product) and low unemployment rates. Favorable markets and all-around encouraging economic conditions are also vital factors that can increase the chance of a bull market.

Characteristics of a Bull Market

Bull markets are not only characterized by the sustained rise of asset prices, but also by economic conditions and market views. Typical signs of a crypto bull market are:

  • Strong Demand — An increase in the demand for an asset with limited supply causes a steady rise as supply weakens.
  • Confidence of Market Participants — The number of buyers increases when participants are generally positive. A sustained market ultimately makes the market bullish and keeps prices healthy.
  • Strong Positive Media Presence — Constant news and positive headlines about cryptocurrency in mainstream and online media increase awareness and adoption of crypto assets and attract more buyers.  
  • Economic Conditions — The crypto market has become a failsafe for many people across the world. In situations where a nation’s economy is at an imbalance or shows signs of a crash, many people hedge their funds by buying cryptocurrencies through a centralized exchange or decentralized exchange.

How to Take Advantage of a Bull Market

All crypto community members aim to profit off the market by selling, buying, hodling, or engaging in margin trading. Although market volatility makes it very difficult to predict the best times to trade, people maximize profits using one or more of the following strategies:

Buy and Hold — This involves buying an asset, holding it for an extended period, and selling it at the peak of a bull run. High optimism and confidence are usually associated with this strategy.

Incremental Buy and Hold — This variation of the buy-and-hold strategy involves the incremental purchase of an asset as the price increases in a bull market. Traders may consider using a predetermined percentage rise in price or a pre-set value increase. Added increments can be fixed amounts or vary according to changes in price.

Retracement Additions — A retracement is a brief period in a bull market where the price of an asset reverses. Traders who miss out on buying an asset at a low price sometimes wait for price retracements before making another purchase. This helps the buyer to take advantage of a subsequent rise, and lowers their average buying price of the asset.

What Is a Bear Market?

A bear market describes a situation where prices continuously drop over time. In most cases, bear markets are characterized by a 20% fall from recent highs or a period of prolonged price decrease. Bearish conditions may occur due to widespread pessimism and negative market sentiments.

Characteristics of Bear Market

Typical signs of a bear market include the following:

  • Asset supply is greater than demand
  • Widespread lack of confidence in the market
  • Negative mainstream coverage in traditional and social media
  • Distrust in the sector among economists and financial analysts

What Causes a Crypto Bear Market?

Some common bear market indicators include:

  • Lower Trading Volume: A drop in cryptocurrency trading volume usually indicates that traders have started closing trades and holding onto their assets due to market uncertainty.
  • Negative Sentiments From Traditional Finance: Public sentiments and comments from traditional finance sometimes precede a crash in crypto asset prices.
  • Backwardation: This occurs when the current price of an asset is higher than its trading price in the futures market.
  • New Regulations and Laws: Any regulation that hinders crypto transactions will effectively cause widespread uncertainty in the crypto space and result in a dip.

Bull vs. Bear Market: Key Differences

Some of the major differences between a bull and bear market include:

  • Supply and Demand — There is considerably strong demand and weak or limited supply in a bull market. On the other hand, a bear market has more sellers than buyers.
  • Market Scenario — A rise in GDP indicates a potential bull market, while a falling GDP signifies that a bear market might begin. Since GDP rises with salaries and overall income, a reduction suggests less consumer spending power.
  • Impact on Economy — A bear market is associated with a weakened economy. When businesses do not meet revenue goals and consumers are not spending enough, the entire economy is negatively affected. However, a bull market sets in when the economy becomes stronger and there is a corresponding rise in profits and purchasing power.
  • Liquidity — A bull market indicates higher liquidity as market confidence and steady returns rise. In a bear market, the lack of confidence and market uncertainty directly discourages liquidity from entering the market.
  • Local and International Investments — Bullish markets enjoy sustained price increases. Local and international investors are confident in the continuous uptrend of the market and are more willing to take risks. By contrast, dropping prices in a bearish market comes with less investor confidence.

Bear Markets vs. Bull Markets: The Cycle

Financial experts suggest four phases in the cycle of any asset in a bull or bear market. These are:

  1. Accumulation: Early adopters buy an asset at very low prices.
  2. Markup: The media’s outlook on an asset becomes favorable and influences more buyers to enter the market.
  3. Distribution: Traders begin to close out major trading positions. During the distribution phase, buyers and sellers struggle to increase or reduce prices.
  4. Markdown: Prices fall significantly. The asset may then return to the accumulation phase, and the cycle begins again.

Many factors drive bullish and bearish cryptocurrency markets. Unlike the traditional finance market, the cryptocurrency market has fewer market participants and is more volatile. Therefore, people interested in trading may consider learning the fundamentals of both market conditions, in addition to understanding crypto trading signals and relying on technical analysis.

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