What is Bull and Bear Market?
There are trends in everything including in the investment world. There are two phases of market’s trends over time, the rising phase and the declining phase. These phases tend to cycle with each other and create a noticeable pattern. This pattern can be seen in many types of investment assets including stocks, commodities, real-estate and cryptocurrency.
These two phases of the market are called bull and bear market. Where bull market indicates that the market condition is being dominated by the upward trajectory of assets’ price. On the other hand, the bear market indicates that the market condition is being dominated by the downward trajectory of asset’s price.
What exactly are these two phases impacted the crypto market? And how to identify them?
What is Bull Market?
Bull market is the state of the market when most crypto assets price is rising continuously. In this period the demand outweighs supply, market confidence is high and a lot of investors are buying. During this period of time Bitcoin and many other crypto assets will break their current all time high. Traders and investors try to take advantage of the market’s rising prices during this market period.
There are still price swings and corrections even during a bull market. It can mistakenly be believed that short-term downturn trend signals the conclusion of a bull market. This is why it’s crucial to take any prospective trend reversal indicators into account from a wider perspective and overview the price on the longer time frames. Bull markets do not last forever and eventually, investor confidence will start to decline. This could happen by anything from bad news such as government policy or wider economic circumstances.
What is Bear Market?
In contrast to the bull market, the bear market is the state when most crypto assets price is declining continuously and does not return to its peak value before. In this period the supply outweighs demand, market confidence is low and most investors are selling. Trading activity on the bear markets can be difficult, especially for inexperienced traders.
During bull market, it is difficult to predict where the bottom price is and when the bear market will last. However the bear market poses better long term opportunities than the bull market. During the bear market investors can buy crypto assets at a discounted price, a lot of low utility crypto projects will die and investors can avoid these projects during the bear market. These activities can result in huge returns when the market cycle reverses and the bull market kicks in.
For many seasonal traders there are certain strategies that they implement during the bear market. First one is doing the short-selling, which is a derivative way of crypto trading where investors can earn profit as the asset’s price declines. The second one is the dollar-cost-averaging strategy (DCA) where investors buy assets on a regular basis for each month or each week whether the asset price rises or declines.
How to Identify Bull and Bear Market?
Simply by seeing the price trends at the current moment. If the crypto asset’s price is on the rise, that indicates the bull market. If the crypto asset’s price is on the fall and stagnant, that indicates the bear market.
However there are two ways to identify bull or bear market. By observing the market sentiment analysis and observing bitcoin logarithmic chart:
1. Crypto market sentiment analysis
Bull market can be identified when the market sentiment reaches over 60 and is called as ‘greedy’ market. In this state more and more investors are pouring their capital to buy the crypto assets because of its steady price increase. However when the market sentiment reaches above 85 that indicates market corrections are due for a price correction. The price upward trajectory cannot last forever, it needs temporary price correction in order to reach higher price level
Bull market historical events:
2017: Market sentiment reaches 82
2019: Market sentiment reaches 92
2020: Market sentiment reaches 95
2021: Market sentiment reaches 82
In contrast to the bull market, the bear market is the opposite market sentiment when it drops below 40 and is called as ‘fear’ market. In this state, investors are reluctant to invest in crypto assets because of its steady declining or stagnant prices. However when the market sentiment drops below 25 that indicates the market is due for a price rebound. Even on bear market there are still minor price rebounds that happen when investors slowly accumulate the crypto assets.
Bear market historical events:
2018: Market sentiment reaches 30
2019: Market sentiment reaches 11
2020: Market sentiment reaches 14
2022: Market sentiment reaches 6
2. Bitcoin logarithmic chart
Investors will miss out on a lot of important aspects when observing Bitcoin normal charts. However some investors observe a wider perspective chart called the logarithmic chart. This chart does not use a constant number for its Y scale, it is using the exponential number which is designed to observe trending and volatile assets such as Bitcoin or another cryptocurrencies.
When Bitcoin logarithmic chart drops below the blue-ish zone, it is a cheap price to buy because historically this price’s zone always rebounded the price higher. When the chart reaches the red-ish zone, it is a danger price due for corrections.
In this analysis, the red-ish zone acts as the bull market period and the blue-ish zone acts as the bear market.
Historically bull and bear market according to logarithmic chart analysis:
End of 2013 = Bear market
2014 full-year = Bull market
2015 – 2016 = Bear market
2017 full year = Bull market
Mid to end 2018 = Bear market
Early 2020 = Bear market
Mid 2021 = Bull market
Mid 2022 = Bear market
The crypto markets like any other asset’s class markets operate on the same fundamental principle, which is the cycling phase of bull and bear market, however the crypto market can differ in the length and nature of their cycles. The stock market is a mature, stable market, and its cycles can last for years. Crypto market on the other hand is a much younger asset still at the early stages of development. As a result, the cycles in the cryptocurrency market are more volatile and unpredictable. Investors should be aware of the opportunities and risks when making investment or trading decisions.
Why are Bull and Bear Used for This Market Cycle?
The origins of these terms in the financial world is yet to be determined, however a lot of investors believe these terms philosophy come from both of these animal attacks. Bulls are attacks by thrusting their horn upward, thus thrusting the asset’s price upward. While bears attack by swinging their claws downward, thus bleeds the asset’s price downward.