As a (potential) investor in cryptocurrencies, terms like bull market and bear market are very important. These terms indicate whether the crypto market is in a rising or declining trend. So what do these terms actually mean?
Table of contents
- What is a bull market?
- What is a bear market?
- Trading strategies bull market
- Trading strategies bear market
- Are we currently in a bull or bear market?
- History of the bull and bear market
- What marks the end of a bull market or bear market?
- Concluding thoughts
A bull market is a market in which you see mainly positive price developments and is a term used in the financial sector. Think of an upward trend in price for a longer period of time. The counterpart of a bull market is a bear market.
When does a bull market begin?
A bull market tends to start when investors are optimistic about the future prospects of an asset or of the market as a whole. The market recovers slowly and the overall level of consumer confidence keeps increasing. More and more investors, also known as the bulls, enter and the market continues to rise. There are several external factors that play a role in creating a bull market in crypto. These include regulations and the economic situation of major nations, such as the United States, Europe and China, and many more factors.
During a bull run, it' s common for currencies to rise tens of percent within a few days and occasionally a few hours. At the end of a bull run, it is possible that some cryptocurrencies have risen more than 10,000% during the entire cycle.
What is a bull run?
When the value rises for a longer period of time, you can speak of a bull run. A bull run is another word for bull market and usually begins when investors are positive about the development of the market as a whole.
How long does a bull market last?
In the crypto market, a bull market lasts approximately two years. It is impossible to determine when the bull market ends. This is because the market is subject to developments which create fear or opportunism. On a so-called 'top', whales sell a part of their crypto to grab a profit, causing the market to go into a negative trend. After a bull market the bear market starts.
A bear market is a market which is in a downward trend. One can speak of a bear market when the market has been declining for an extended period. A downward market trend is characterised by significant falling prices over a relatively short period of time. Bear market is the counterpart of bull market. Some claim that you can recognise a bear market by a minimum fall of 20% and a fall which continues for at least seven days.
When does a bear market start?
A bear market usually begins when a sense of pessimism arises among investors, resulting in a fall in prices and a loss of confidence in market prices and indexes. In response to the pessimistic market sentiment, pessimistic investors, also known as 'bears', start selling their shares. These bears ensure that this vicious circle continues until the market finds itself in a crisis, in which the majority of investors have made a loss on their investment.
Due to the fact that the cryptocurrency market is still relatively small, it is extremely volatile. Therefore, bear markets in the crypto world are more severe and longer lasting than in traditional financial markets such as stocks and bonds. One of the heaviest bear market in crypto history started in January 2018 and saw cryptocurrencies lose up to 99% of their value.
In December 2018, at the bottom of the bear market I dropped the line “Long bitcoin, Short the bankers” on national TV.— Pomp 🌪 (@APompliano) August 2, 2021
We’re up 10x since then. Check the receipts :) pic.twitter.com/DpqQSRw5hc
A widely used and easy to execute strategy is the combination of 'Buy the dip' with dollar cost averaging (DCA). Buy the dip is nothing more than profiting from a drop in crypto and is often seen as a good entry moment. Because the market is in a bull run, there is a big chance that the drop will eventually develop into a rise. Therefore, falls are favourable entry points. Professional investors advise not to enter with all your money during buy the dip. They advise to enter with a small part to run less risk. DCA is a good strategy for investing in parts. With DCA in combination with buy the dip, you buy for a fixed amount each time the market dips.
Don't buy the pump and sell the dip. Maybe consider the reverse.— CZ 🔶 Binance (@cz_binance) November 26, 2020
A second strategy that has worked well in the crypto market is HODL (Hold On for Dear Life). HODL is nothing more than buying and holding crypto. Holding on to crypto in a bull market results in holding on to your crypto for so long, that at any all-time high you will still own your crypto. HODL of cryptocurrencies is seen as one of the most successful strategies and is, contrary to DCA and daily trading, a lazy strategy. The downside of HODL is that in a bear market the value of your crypto will decrease. But if you believe in the long term of crypto, you will eventually start making profits again when the bull market is reached again.
Everyone feels like they missed the bus, just HODL. pic.twitter.com/sxAKBfSqSG— Documenting Bitcoin 📄 (@DocumentingBTC) April 3, 2021
The 'Buy the dip' combination with DCA can also be used in a bear market. You must assume that the declines in a bear market can be between 85% and 99%. Be aware then that there are many drops for which you need to have money available.
Keep an eye on 'falling knifes' and do not fall for them. Not every dip is a good entry moment. A falling knife is a fast fall, after which the dip seems to be over. However, with a falling knife, the price will dip at least once more afterwards. This also happened with Bitcoin in early 2018. The price quickly dipped from $20,000 to $17,000 per BTC. Investors thought at the time that it was a good time to enter the market, but the price then fell to $10,000 per BTC. Later, this turned out to be the signal for a bear market.
When you hear preposterous comments like "the market is never going down big again" you know investors are conditioned to buy the dip, and when a bear market eventually arrives MANY will blow up and suffer heavy losses because they will be buying the dip that keeps on dipping.— Mark Minervini (@markminervini) September 15, 2021
To prevent your crypto portfolio from falling sharply in value, trading Stablecoins is a safe way to withstand sharp declines in the crypto market. Stablecoins such as Tether and USDC are coins that correspond to the value of the US dollar. It is worth considering converting a part of your cryptocurrencies into stablecoins. This way you avoid that your portfolio drops significantly in value and you have crypto to swap against other coins when the market picks up and the next bull market is around the corner.
On 10 November 2021, Bitcoin reached its all-time high of over $68,000 per BTC. Since the peak, Bitcoin has been in a downward trend. This can be concluded from the fact that Bitcoin has decreased by 53.74% since the peak. Altcoins such as Ethereum and Solana also reached their all-time high in November 2021. They also have had a decline of at least 50% since the peak. Therefore the most important question; are we currently in a bull market or a bear market?
To determine what kind of market we are in at the moment, we will use Bitcoin as a benchmark. Bitcoin is in fact the very first cryptocurrency and the highest market value of all crypto currencies. As a result, most currencies follow the Bitcoin trend. If Bitcoin's value rises, altcoins will rise with it, and if it falls, altcoins will fall with it.
Bitcoin has had a huge surge in value since the COVID-19 pandemic. Within 400 days, its value rose from $3,720 to $64,865, an increase of more than 1600%. The overall trend has thus been completely bullish for a little over a year and we have been talking about a bull run.
In mid-May, Bitcoin experienced a major correction. Every bull run has corrections, because no stock continues to rise indefinitely. However, the correction in May was never as effective as this one. In nine days, the price of Bitcoin fell by 50%. In the following days, the price slumped further. The entire crypto market of more than $2.5 trillion plummeted below $1 trillion. In the history of crypto, such a correction has never happened before.
After the decline, we experienced a sharp rise, with Bitcoin reaching a new all-time high of $68,000 in November 2021. After reaching the peak, Bitcoin immediately experienced a steep decline, reaching a value of $35,000 for one BTC on 22 January 2022. After the drop, we saw sideways movement for a long time. In mid-March, the Bitcoin exchange rate started to rise again and in just over two weeks the price rose by almost 30% per BTC, bringing the value of one Bitcoin to over $47,000. There was speculation at the time that the bull run would continue again, but at the time of writing we are seeing a downward trend again. On 9 May 2022, the price reached the support level of $30,000. Like Bitcoin, most altcoins are also in a downtrend and the $30,000 level could be an important make or break point for Bitcoin. Experts therefore see $30,000 as a crucial point whether the bear market will continue or whether Bitcoin can bounce back towards $40,000.
Like the global economy, the crypto market fluctuates between bull and bear markets. In the crypto markets, these cycles tend to be much shorter than in most economies.
There have been three cycles in the early history of crypto. From 2009 to 2014, the price of Bitcoin flourished, reaching a peak of around $1,200 in November 2013. After reaching this all-time-high, the value collapsed completely and the price corrected to below $200, which meant a drop of around 86%.
Bitcoin remained in a bear market until September 2015 where the price did not fluctuate much. After 2015, the price of Bitcoin slowly started to rise again. Starting in September 2015, it took Bitcoin just over 500 days to match its all-time-high of $1,200.
At that time, the crypto market started to grow along with other cryptocurrencies, called altcoins. Cryptocurrencies gained more attention from the public and a true bull run ensued. From late 2015 to late 2017, the value of Bitcoin increased by about 6,000%. Other cryptocurrencies such as Ethereum, Litecoin and NEO also rose furiously during this period. Cryptocurrencies were more bullish than ever.
But as Murphy's Law dictates, everything that can go wrong, will go wrong one day. And that is what happened in January 2018. The crypto market was overheated and a wildly rapid decline in value began, initiated by the bears. The entire crypto market fell in one year from a market capitalization of around $660 billion to $87 billion. A drop of 88%.
After a relatively small crypto upswing, it suffered another blow during the Corona pandemic. The entire market dropped from $300 billion to $100 billion within one month!
However, as mentioned before, cryptocurrency cycles are (up to now) of short duration. Partly due to the enormous supply of potentially good crypto currencies, a hype was created after the impact of the Corona pandemic. Many coins have flourished in the past year and have risen by hundreds to thousands of percentages. Bitcoin was even the first crypto to reach a market value of over 1 billion dollars.
The corona pandemic has only just entered its final phase, when the next major development is on the horizon. The conflict in Ukraine was expected to cause panic on the market, but the crypto market remained stable. Nevertheless, the price has fallen sharply in recent months. This is due to the interest fears and rising inflation that have gripped the financial markets for some time. The economic instability is therefore also the main reason why the crypto market is currently falling.
The end of a bull market and a bear market are difficult to determine. This is because during a bull market there are many fluctuations, declines and corrections in price, and vice versa for the bear market. Recognising signals of a trend reversal can be very difficult on charts in a short time frame.
When in doubt, zoom out. Select a longer timeframe at Tradingview. Via Tradingview you can easily view charts per cryptocurrency and determine yourself whether we are in a bull market or bear market.
History has shown that a bull market and bear market never last forever. At a certain moment, the confidence of the bulls or the pessimism of the bears will start to increase. Several factors can be responsible for this. Just look at the COVID-19 pandemic. Nobody expected this and most financial markets ended up in a (temporary) bear market.
The bull market and bear market move in the crypto market in relatively short cycles. As a result, you can make a lot of money if you use the right strategy at the right times. In particular, buying during a dip and using the dollar-cost-average strategy avoids risk and would be profitable to date if you did not deviate from the tactic.
But at the moment it is difficult to define what kind of market we are in. The crypto market rose explosively until May, but then experienced a major correction. And even after a new upswing, we are currently facing a correction. Therefore, it seems that we are currently dealing with a bear market, where the trend will lead to deeper declines. If the price of Bitcoin manages to break above $30k, we may see an increase in value up to $40k per BTC.
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