The terms ‘bull’ and ‘bear’ generally appear while discussing stock market proceedings. Market analysts tag a rising market to be bullish where the investors portray high confidence and there remains a stable volume of stock purchases.
On the other hand, bearish markets refer to periods where the value of assets takes a dip and the movement stays persistent for some time.
In this article, you will understand how these trends apply to the crypto world. Finally, you will get to know about their major differences.
What Is Bull Market?
A bull market signifies a market trend when most investors feel comfortable in allocating their funds to newer assets. In a nutshell, it indicates that the market is on the rise. Investor sentiments regarding the contemporary parameters seem positive during such periods.
When cryptocurrency markets are said to be undergoing a bull run you will see a stable rise in the prices of different crypto tokens. Indirectly, these conditions speak highly about an economy and indicate comparatively steady employment status.
What Are the Key Reasons Leading to a Bullish Market?
Crypto investors as a whole community are responsible for the initiation of ‘bull phases’. Led by various current affairs or sometimes even getting convinced by any prominent investor, they start buying coins with a fresh dream of gaining high ROI later on.
In addition, many other factors may also cause the beginning of a bull run. These reasons can be a remarkably low unemployment rate, predictable GDP growth, etc. As the cryptocurrency segment is comparatively new, the bullish market may be influenced by some of its unique factors as well. For example, these are some of the instances that previously caused a boom in the global crypto market are:
- On January 2021 the financial strategists at JP Morgan Chase & Co. announced via their reports that Bitcoin has the potential to rally up to $146,000 over time. Also, they hold this currency as an alternative to gold.
- Recently, following the dreadful effects of the COVID-19 pandemic, traditional assets took a tough hit in terms of valuation. It caused many people to rely on crypto assets more than ever for growing their net worth in the long run.
What Are Some Characteristics of a Bull Market?
These are a few typical signs that you will witness in a bull market:
- Cryptocurrencies are traded at a hiked price for a sustained period.
- Graphical representations portraying buying trends continue going up for long.
- Crypto assets, NFTs, and other resources that need digital tokens for access remain overpriced.
- News and other media platforms are frequently talking about the increased rates.
- If a negative incident takes place, the price drops only a little bit.
What Is Bear Market?
Bear market initiates when the values of prominent crypto tokens fall by at least 20% and the negative graph continues to extend. The most infamous price crash was noticed back in December 2017 when investors had to witness a drastic fall in Bitcoin pricing. Within a week Bitcoin’s valuation came down to a mere $3,200 from a massive amount of $20,000.
As the abrupt market movement creates a shock, the investors’ sentiments further follow a downward mindset. Bear markets are known for creating a pessimistic atmosphere which often leads to panic selling of actual holdings. However, you need to understand is that these runs ultimately end and are followed by yet another prolonged bull phase. Thus buying during the bearish market can eventually lead to profits when the market begins to revive.
What Are the Key Reasons Leading to a Bearish Market?
As already mentioned, a bear market normally starts when prices start to decline. Further downward trends occur from investors losing hope that prices will rise.
While a bear market can have a variety of causes, there are a few signs that set prior indications that one is about to begin. These include:
- Persistent records of lower trading volume act as a firm indication. It specifically emphasises that people have begun to hang onto their possessions fearing the market’s instability.
- Another common reason that causes a bearish trend is backwardation. When the projections in the futures market portray the price of an asset to decline below its current price, investors consider that to be a red flag.
- Finally, the involvement of regulatory bodies also plays a significant role. During many instances, mining operations and crypto trading are forced to shut down as a result of statutory regulations, which increase uncertainty among investors.
What Are Some Characteristics of a Bear Market?
Few of the common attributes that go hand in hand with a bearish market are as follows:
- Supply of crypto assets exceeds the projected demand.
- Crypto tokens are traded over the exchanged platforms at a deflated price.
- Hype regarding crypto trading becomes almost nil across all media platforms.
- Economists and financial advisors do not speak in favour of escalating crypto possessions.
What Are the Differences Between a Bull and Bear Market?
You can see the main distinguishing aspects in the table below:
Multiple factors trigger the initiation of bull and bear crypto markets. Investors dealing with cryptocurrencies generally buy during bear markets and stick to their holdings. It eventually allows them to garner benefits when the next bull market starts. Besides this, several advanced tactics are deployed by veteran traders to capitalise on varied circumstances.