What are the differences between crypto bull and bear market? The Bull market and Bear market are two terms that may sound very simple to an average trader but there are lots of complex things involved in it, especially the factors that cause these situations in the market.
In order to have a much better knowledge about them you will need to know the differences between these two specific types of market conditions as well as the reasons behind the existence of them.
These two terms are very common in the world of investments, whether it is traditional financial markets such as stock and forex markets or crypto markets.
These two terms refer to the market conditions, whether the value is depreciating or appreciating, and how it is doing in general.
This is what you will come to know from this article. In addition to that, you will also know which one of these two market conditions is better to make an investment.
As a crypto investor, it is important for you to know the direction in which the market is moving before making any investment decision.
This is because the market condition is a major driving force and an important factor that will have a significant impact on your investment portfolio.
13 Differences Between Crypto Bull and Bear Market
Ideally, apart from choosing the best crypto trading strategy, you will also need to know the best time to make your investment in a particular crypto asset.
The best way to start and make sure that you get a higher positive return from your investment is by knowing the differences between a Bull market and a Bear market.
These differences between the two market conditions will help you to ensure that at least the market conditions do not have any adverse effect on your crypto investment portfolio. Here you go.
A Bull market, or Bull Run, refers to that specific time or condition of the market wherein the prices of the assets are on the rise.
This trend typically shows that the market is favorable to make an investment and the returns on them will be positive and probably quite high.
However, the rise in prices of assets is sustained but the investors still have faith in the market trend and expect it to stay the same in the long term.
On the other hand, a Bear market refers to the situation where the prices of assets keep on falling. However, there is a catch.
A market is not considered to be truly in a bearish condition unless the prices of the assets have fallen by 20% or more in comparison to their recent highs. This downward trend of the prices, the investors believe, will continue. This trend is often termed as a downward spiral.
The Bull market resembles the fighting style of a bull with its horns raised high and hitting the opponent high up in the air.
On the other hand, a Bear market resembles the fighting style of a bear where it starts high, then attacks with its claws downward, pinning and pushing down the opponent with its weight.
3. Investors Perspective
The activities and behaviors of the crypto investors also differ according to the given market condition. In a Bull Run, a major part of the investors is interested in buying crypto assets.
Their confidence in the market is quite high and their demand for a particular crypto asset outweighs supply. This results in a rise in the prices of the assets.
These investors are known as the bulls and their positive feedback draws in further investment which increases the prices further. This optimism of the investors about a given market is called the market sentiment.
On the other hand, in a Bear market, the confidence of the investors is low due to the declining prices of the assets.
This results in a greater supply of crypto coins than the demand for them. Investors are pessimistic about the market and believe that the prices will continue to fall further.
The investors in this market are called Bears and their pessimistic attitude makes it quite difficult to trade in a Bear market, especially if they are inexperienced traders.
4. Supply and Demand
In a Bull market, the demand is stronger than the supply of assets and therefore there is a rise in price. This means that few investors will be willing to sell their coins off while more of them will be interested to buy more coins.
On the other hand, in a Bear market, it is just the opposite. The supply is more since more people will wish to sell their coins off expecting a further fall in price and a few will be willing to buy them.
5. Market Sentiment
In a Bull market, the market sentiment is positive. This means that the investors believe that the prices will continue to be at a high, if not rise even further. Therefore, they will invest more in a Bull market in an anticipation to make more profits. This results in more inflow.
On the other hand, in a Beal market, the market sentiment is negative. Investors rarely come forward to put in more money in the market. Instead, people tend to withdraw their assets and wait for a positive turnaround of the market. This increases the outflow.
6. Economic Perspective
Just like any other financial market, a Bear market in the crypto world indicates a weaker economy where most of the businesses cannot make huge profits.
This directly affects the valuation of the assets and instruments of the market. Therefore, the Bear market refers to a receding economy in which most of the instruments are falling in value.
However, on the other hand, in a Bull market, the opposite occurs. People have adequate money in hand to spend and are willing to invest in the assets available in the market.
This allows the companies to make more profit which, in turn, makes the economy stronger. A bull market, therefore, signifies that the economy is sound and refers to a market situation that is on the rise.
Statistically, the Bull market actually refers to a phase where there is typically a 40% rise in the prices seen more commonly in the crypto assets over a period of one or two days.
On the other hand, in a Bear market is where the value of the crypto assets falls by at least 20% and continues to decline further.
Apart from the behaviors and actions of the investors, there are several other factors that result in a crypto Bull market.
These are a sturdy Gross Domestic Product, pop and conventional culture support, the introduction of institutional investments, rising confidence from traditional finance, and exceptional events that may intimidate traditional finance.
On the other hand, the other factors that cause a crypto Bear market are war, pandemics, political crises, slow economies, intervention from the governments and regulatory bodies, low trading volume, negative sentiments or declining confidence from traditional finance, death cross, backwardation, and changes in the rate of the federal funds.
You can identify a Bull market with some specific characteristics such as strong demand, weaker supply, rise in prices over a constant period of time, overpricing of a few specific assets, increased confidence of the investors in the market, growing interest in crypto among influencers and celebrities who did not have much interest before, more talks about crypto in social media and mainstream media, notable rise in prices of assets due to good news and insignificant drop in it in the event of bad news.
On the other hand, a Bear market can be characterized by the decreasing prices of assets over a period of time, more supply of crypto assets, less demand for them, low confidence among the investors in the market, negative or no talks about crypto in the media, general distrust among analysts, economists, and traditional finance sector, lower highs and lower lows in the event of good news and bad news respectively.
In terms of liquidity, it is offered more by a bullish market. This is because the traders can trade assets at a much lower cost of transaction. They have high confidence in gaining steady and quick returns on their investments.
On the other hand, you can expect to have lower liquidity in a bearish market. This is due to the market conditions that do not help much in raising the confidence of the crypto investors.
Even if you incur a loss in a Bull market, it will be insignificant and temporary. Add to that, you can easily invest in more to increase your probability of making a higher return since it lasts longer in comparison to a Bear market condition.
However, on the other hand, in a Bear market, the chance of incurring losses is greater. This is because the process in this market keeps on falling continually.
Therefore, it is highly likely that you will take a hit before there is a turnaround. Ideally, in a Bear market, you will find profitability lies most in short selling.
12. Risk Factor
A bearish market offers the crypto traders to buy usually at a lower price and increases the chances of making higher profits when the market strengthens. In this market, the risks involved are quite low.
However, the bullish market, on the other hand, can also offer such chances due to the uptrend but both this market situation comes with its significant risks, just as in any other financial market.
Ideally, the best thing for you to do as a crypto investor to ensure a consistent profit is to invest in both the markets.
However, when you invest in a Bull market, buy the coins early to take advantage of the rising prices and sell them when the price reaches its peak.
Make sure that you recognize the trend early so that you can buy early. This will not be very difficult since a Bull market will typically last for a longer period of time as said earlier.
However, in the case of emergencies or unexpected turns, the best strategy to follow is to reduce your positions, especially if you are dealing with lesser-proven crypto assets.
In these situations, you should typically convert your holdings into cash, precious metals, or any similar assets temporarily that can hold up against a crash.
If you want to invest in a Bear market, which involves more risk, buy crypto assets when the price points are lower and sell them in the following Bull market at a higher price. You may also sell off your current holdings and buy them back later when the prices continue to decline.
Which is Better – Crypto Bull or Bear Market?
Ideally, a bullish or a bearish market condition applies to traditional markets as well as crypto markets.
However, in the crypto space, you will see more consistent and stronger Bull Run phases more commonly than you will in a traditional financial market.
In an ideal world, the effects of a Bull and Bear market on crypto assets are similar to that of stocks but the trends may differ due to added susceptibility of crypto assets to price and market fluctuations.
As it is, the crypto markets tend to respond instantly to Bull or Bear market situations.
The main reason that the conditions of a crypto market change, just like any other financial market, is the attitudes of the investors.
These fluctuating market conditions, whether it is a Bear market or a Bull market, denote the feelings of the investors and how they will react with their crypto trading moves due to the ensuing fiscal trends.
The main reason behind this is that the crypto markets are comparatively much smaller in size than the traditional financial markets. This means that the crypto markets are more volatile.
If you want to have a much better understanding of these two specific market conditions so that you can invest in crypto assets more confidently, simply knowing the differences between a Bull market and a Bear market is not enough.
For that, you will also need to know a few other characteristics of these two particular market conditions.
Typically, whether a market is bullish or bearish is determined by the direction of the assets traded on it.
There are several other strategies that professional crypto investors follow in different market conditions.
One such important strategy is to observe the past patterns of the market and look for a ‘rectangle pattern’ especially to identify the bullish trends.
Such a process helps them to predict the upcoming trends to plan their strategies to navigate through the changes in the market.
A few other useful strategies include:
- Keeping them abreast with the latest news and happenings in the crypto circuit
- Reading articles about crypto trading and investing tips and tricks and
- Learning from the crypto experts.
Crypto market movements are more volatile than traditional financial markets but the assets are less vulnerable to changes because these are all digital currencies.
But, when the crypto market enters a specific bullish or bearish trend, it moves pretty fast in comparison to the traditional stock markets.
Typically crypto bull markets may last for a couple of days to a month, at the maximum, as opposed to the traditional exchanges such as The New York Stock Exchange which can last for years.
This is because as the market strengthens, the bull investors decrease because they sell their assets to cash out.
It is hard to determine the time when a Bear market will end because rebounding is very slow in such situations and it is hard to tell when the bottom price will be reached.
There are also several external factors that influence the process which makes it further unpredictable. These factors include:
- Psychology of the investors
- Growth possibilities and
- Market events and world news.
However, everything is not bad in a Bear market since it presents a lot of diverse opportunities. For example:
- If you buy crypto assets as your long-term investment strategy in a Bear market, you will have a high payoff once the market cycle is reversed.
- On the other hand, the investors who are looking to make short-term investments can also experience momentary corrections and price spikes in a Bear market.
- And, for the more advanced crypto investors, there are other different options to choose from such as short selling, which is a process of betting that the price of an asset will fall.
There is also another productive opportunity in this market called the Dollar-Cost Averaging.
In this process, a fixed amount of money is invested every week or month irrespective of the price rise or fall.
This process distributes the risks and allows the investors to invest through the Bear market and Bull market alike.
In order to gauge the market sentiments and changes, there are a few major determinants over and above the knee-jerk reaction of the market to any particular event.
One of the most significant determinants is the performance of the market over the long term.
Long-term is the key here since short-term trends indicate small movements and corrections which are not useful in this regard.
However, it is not possible to time and characterize a market perfectly because there may be times when the market may experience a period of stagnation.
This is actually the time when the market decides which way it should move henceforth.
In such a situation, there can be a series of downward and upward movements. These will cancel out the profits and losses made in a flat market.
Therefore, from all the different features and information regarding the Bear market and Bull market mentioned above, there are a few particular things that can be summarized for you to choose the best market conditions to invest in.
As far as the investors are concerned, most of them are bullish though there are many who are bearish as well.
This means that most investors usually crave to have a positive return from their investments in the long term.
In a Bear market, there is a high chance that several of the equities or crypto assets will lose their value or the prices become extremely volatile.
It can be very dangerous to invest in a crypto asset when the market condition is bearish.
Also, in a Bear market, it is quite likely that the investors withdraw their money and hold their cash till the current trend of the market reverses because it is very difficult to judge the time when a market may reach its bottom.
It is this behavior of the investors that sends the prices of the assets further down.
However, it may not be easier to spot a Bull or Bear market in crypto as it is in the case of traditional stocks.
This is because the investors in this market give their feedback in a much different way as against stocks.
Both Bear market and Bull markets influence your investments significantly and therefore it is essential that you know how to choose the best time to invest. This article will help you in that and to make the right choice to get a positive return.