What’s the difference between a bull and a bear crypto market and how do you deal with both?
Cryptocurrency markets are volatile. Prices can rise and fall rapidly in a matter of hours, and there’s just no knowing where a token will head next. So, it’s no surprise that there are terms used to describe big fluctuations in the market. The terms “bull” and “bear” or “bullish” and “bearish” are what crypto owners use to describe big market changes, but what does each term actually mean? Today, we’ll run through what kind of fluctuations these words refer to.
What is a bull market?
A bull market is what we see when prices within a market are beginning to rise or are strongly expected to rise. If prices rise over 20% after two 20% declines take place, it is considered to be a bull market or bullish. When markets are bullish, it is seen as a sign that it is doing very well and is growing.
High demand for stocks is also seen in a bull market, and price increases are generally seen over a sustained period. However, given how volatile the crypto market has always been, people tend to use the terms bullish and bearish a little more loosely. The price of a coin can change by 20% in the space of a few hours or days, and such a change is often described as bullish or bearish.
The term “bull market” is believed to have originated from a bull’s fighting style, wherein it attacks its opponents with its horns in an upward motion. Today, a “bullish” market or investor usually connotes optimism concerning an asset’s continued rise in value.
In the crypto market, the charging bull heralds a bullish phase for cryptocurrencies. Here, you’ll observe cryptocurrencies growing in value with generally favorable economic conditions and optimistic investors looking to make the most of their rising crypto portfolios.
What Is a Bear Market?
Bear markets are defined as a period of time where supply is greater than demand, confidence is low, and prices are falling. Pessimistic investors who believe prices will continue to fall are, therefore, referred to as “bears.” Bear markets can be difficult to trade in — particularly for inexperienced traders.
It’s notoriously difficult to predict when the bear market might end and when the bottom price has been reached — as rebounding is usually a slow and unpredictable process that can be influenced by many external factors such as economic growth, investor psychology, and world news or events.
But they also can present opportunities. After all, if your investment strategy is longer-term, buying during a bear market can pay off when the cycle reverses itself. Investors with shorter-term strategies can also be on the lookout for temporary price spikes or corrections. And for more advanced investors, there are strategies like short selling, which is a way of betting that an asset will decline in price. Another strategy many crypto investors employ is dollar-cost averaging, in which you’d invest a set amount of money (say $50) every week or month, whether the asset is rising or falling. This distributes your risk and allows you to invest through bull and bear markets alike.
Is it better to buy in a bull or bear market?
Crypto traders usually buy during bearish markets for the benefit of lower cryptocurrency prices. As such, when bullish markets emerge, they have higher chances of making a solid profit.
However, there’s also a benefit to buying during a bull market. Buying during bullish markets can contribute to the uptrend, and therefore can also drive your profits as the market strengthens.
Both strategies come with risks, as do any other tactics in trading. So, the key is to really be able to understand historical trends and stay updated with cryptocurrency news. You’ll likely run into a couple of bulls and bears for as long as you’re investing in crypto, so it’s best to consider investing in both.
How to invest in a bull market?
When investing in a bullish market, it’s always best to recognize the trend early on so you can likewise buy early. Later on, you can sell at higher prices just as the market is hitting its peak. Bull markets tend to last long, so any losses are usually minimal and temporary.
But, what if things take an unexpected turn (such as a crisis or regulatory intervention) and you sense a bear market emerging? In this case, the best strategy is to reduce your positions, especially those in lesser-proven crypto. You may want to move your holdings temporarily into precious metals, cash, or similar assets. This is because they have better chances of holding up against a crash.
Cryptocurrencies also tend to be available at lower prices at the end of bullish markets, so keep an eye out and take advantage of the possibility of increasing your investments.
How to invest in a bear market?
Investing in a bear market naturally involves more risk, as prices are lower and investors have low to zero confidence in cryptocurrencies. However, this risk also comes with the possibility of higher returns in the future. As such, you can purchase cryptocurrencies when they are at lower price points and sell them at the peak of the next bull market.
Another strategy that investors use is selling their existing holdings as soon as they detect downtrends, and then buy back these holdings later on at a much lower price as the market continues to decline.
There’s no way of telling how long a bear market will last, especially if it’s driven by recession or similar circumstances. So, the issue is not knowing when exactly the dip will last, and how much further prices can drop. As a result, you might make a premature buy or miss out on a good investment.