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Crypto Bull vs Bear Market - What’s the Difference?

May 06, 2022
byNDAX Labs

A brief overview

“Bull” and “bear” are generally terms you’d see in descriptions of the stock market. More specifically, they’re used to describe whether the markets are depreciating or appreciating in value.

From that perspective, a declining market is referred to as a bear market — while a rising one is called a bull market.

In this article, we’ll take an in-depth look at how those notions apply to cryptocurrency. If you want to learn the difference between a bull and bear market, and to behave in a bull vs. bear market — read on below!

Where did these terms come from?

While most professionals from the world of finance can easily tell the difference between a bull market vs. a bear market, you’ll find that plenty of seasoned Wall Street vets don’t actually know the origin of the terms.

Fundamentally, the names for the “bear” and “bull” stock market trends come from the behaviour of the eponymous animals in wild nature — more specifically, from how they behave in combat. So, while a bear would defensively swap down their paws on their opponents, a bull would thrust its horns high up and charge.

Hence — bear markets describe a state of decline, while bull markets describe robust growth.

Just like with any other stock or commodity market, there are plenty of real-world events and processes that affect the state of the cryptocurrency market. New deals are made among fintech companies, new technologies are developed, legislative attitudes change, startups are launched, and there are constantly new attempts to utilize blockchain technology — and the accompanying cryptocurrencies — in various spheres of life.

All of these events leave their mark on the crypto market to varying degrees. However, we generally refer to a market as bull or bear if a particular trend lasts for more than a few weeks. For instance, if most currency pairs are down for more than two weeks, we can safely conclude that we’re approaching bear market territory — and vice versa.

What is a bull market?

Generally, a “bull market” means broadly favourable economic conditions — which lead to a certain market being on the rise. Usually, this is accompanied by investors expressing positive sentiments about the current uptrend.

In the world of crypto, the “charging bull” means a bullish phase of growth — cryptocurrencies grow in value against traditional fiat currencies, usually as a sign of economic growth, positive legislation on crypto by major economies, or blockchain-related tech breakthroughs.

What are the characteristics of a bull market?

This depends on the market in question. When it comes to crypto, the typical signs of a bull market are:

●   Strong demand coupled with weak supply;

●   High crypto prices over a solid time period;

●   Increased investor confidence in the crypto market;

●   Major pieces on cryptocurrency in mainstream media;

●   A lot of positive buzz about crypto on social media;

●   Overpriced projects;

●   General interest in crypto among influencers, celebrities, and other public figures that hadn’t expressed any interest in the sector before;

●   A huge rise in prices following good news;

●   A small drop in prices following bad news.

What causes a bull market?

In crypto, a bull market is typically an extended period of many investors buying cryptocurrencies — with, as we’ve mentioned above, huge market confidence, demand outpacing supply, and steadily rising prices.

So, what causes this? Specifically for crypto, investor confidence is usually what fuels a positive feedback loop — more investments increase demand, prices rise, and the general market uptick leads to more investments, which start the whole loop again.

Right now, the price of any cryptocurrency is still mainly driven and influenced by public confidence in crypto as an asset.

What defines the end of a bull market?

Logically, the end of a bull market is the start of a bear market — which means a substantial and sustained drop in the prices of cryptocurrencies over a prolonged time period. There’s no universal definition for the end of a bull market and the start of a lull, but a significant drop in prices without recovery for more than two weeks usually heralds the end of the bull period.

What is a bull run?

The concept of a bull run exists in both traditional and cryptocurrency markets. In crypto, though, it’s worth noting that bull runs tend to be much stronger.

For instance, a typical bull run in crypto means a 40% price hike over just one or two days — something that would be considered far more radical in other financial markets. The main reason for this is that crypto markets have relatively smaller capitalizations compared to traditional markets — and thus, they’re more volatile.

Is it the same as a rally?

There’s an important distinction to be made between a bull run and a market rally. A bull run represents a huge uptrend in value — in crypto, it can frequently mean new all-time highs. And it’s something that happens during an overall bull market period.

On the other hand, a market rally is something that happens during a bear market period — a temporary rise in stocks that happens after the initial plunge into a bear market. However, it’s not a new high; it simply represents a temporary rise, usually followed by an even bigger dip.

What is a bear market?

Conversely, a bear market is a period in which the value of cryptocurrencies drops by a minimal 20% — and shows signs of continuous decline. One of the most famous examples that come to mind is the infamous December 2017 cryptocurrency crash, where Bitcoin went from $20,000 to a little over $3,000 in the span of a few days.

What are the characteristics of a bear market?

Some of the typical actions and attitudes that signal an imminent bear market are:

●   Supply outpacing demand;

●   Falling prices over an extended time period;

●   Lack of investor confidence in crypto;

●   Negative talk or a lack of talk about cryptocurrencies in the mainstream media;

●   Lack of activity on social media;

●   General distrust in crypto is demonstrated by traditional financial institutions, analysts, and economists;

●   Lower highs after good news related to crypto;

●   Deeper lows following bad news.

What causes a bear market?

Just like investor confidence starts a positive feedback loop in a bull market — the same trend works in the opposite direction when prices start continuously dropping. The lower confidence that prices will go back up results in even bigger downtrends.

In practice, countless things can push the crypto markets towards lower growth and decline — global political instability, slower economies, pandemics, wars, government intervention, etc.

The young nature of the crypto market makes it more difficult for analysts to predict trends based on previous data — for example, the stock market provides decades of meticulously kept data for investors and economists.

What defines the end of a bear market?

Just like sustained price drops signal the end of a bull market — the same trend in the opposite direction shows the end of a bear market. Once the market shows signs of sustained recovery over a few weeks, investor confidence gets slowly built back up enough to start pushing the price upwards with new investments.

Though, the end of a bear market shouldn’t be confused with a temporary price hike followed by another dip — that’s the bear market rally we’ve discussed above.

Key differences between bear vs bull markets

When it comes to bear vs. bull markets in general, there are tons of factors that differentiate the two in the context of a wider economy. In a bull market, supply is weak and demand is high — while the opposite is true for a bear market.

Beyond that, bull markets are characterized by higher GDP, more trading, a stronger economy, and a sustained high in prices that leads to investor confidence.

In contrast, a bear market means high supply, low demand, lower GDPs, a weakened economy, less trade, and diminishing investor confidence.

However, cryptocurrency markets aren’t affected by the same economic factors. For instance, high unemployment rates won’t necessarily drive the value of cryptocurrencies down — while they’d affect the stock market far more significantly.

How to handle each?

In a bull market, the most important thing is to recognize the upwards trend early enough so you can buy crypto while it’s still cheaper — and then sell it later at a high price, preferably when the market hits its next peak.

Luckily, bull markets in crypto tend to last longer than in other markets — so losses are more temporary and minimal if you play your cards right. Of course, regulatory intervention or a temporary crisis could still force things in an unexpected direction. And in that case, reducing your positions in lesser-proven crypto is the best way to go.

Also, temporarily moving holdings into cash, precious metals, or other more traditional assets isn’t a bad idea either.

In contrast, trying to take advantage of a bear market in crypto comes with more risk — prices will be lower for longer, and investors will have low confidence in crypto. However, the possibility of higher reward in the future is always there — but with bull and bear periods lasting longer in crypto, you’d have to wait a long while to take advantage of the next bull market peak.