Bulls and Bears: The bronze sculpture of a bull has long since become the symbol of Wall Street – the historic center of New York’s financial district. Alternating between bull and bear markets is commonplace for traditional stock markets. So how do you know when a bull or bear market is about to appear? CryptoCrew’s Vladyslav Zadorozhniy shows us the signs.
For the cryptocurrency market, these concepts are of particular importance due to the specifics of this area. Understanding the characteristics of bull and bear markets in crypto will allow you to better weather periods of decline and maximize profits against the backdrop of growth.
Bulls and Bears: Origins of the Terms
A bull market is usually a market in which prices have been rising for a significant period of time. At the same time, a bear market marks a period of sustained price declines.
There are several versions of how the trends in the stock markets have come to these names. According to one of them, the names of bear and bull markets come from the way these animals attack.
The bull lifts the victim up on its horns, so the bull market is a growth market. And the bear attacks from top to bottom, symbolizing the fall in price.
According to another version, bear skin dealers in the United States often pre-signed contracts for the sale of these pelts. Therefore, when buying hunters, they tried to lower the purchase price in order to earn more from the sale. In general, the terms “bullish” and “bearish” are quite firmly rooted in the English language and are used in everyday life.
Bulls and bears in the financial markets
In traditional stock markets, long-term bull markets are suddenly being replaced by bear markets. It is usually preceded by a significant negative event in the economy or other fields. For example, the 2008 bear market began after the bankruptcy of one of the largest US banks, Lehman Brothers.
Prior to 2008, the bear market was sparked by the dot.com bubble – when the stocks of overvalued internet companies started falling. Pandemics like Covid-19 or large-scale wars like the Russian invasion of Ukraine can trigger a bear market.
Bear and bull markets can vary in length over time. For example, the bear market caused by the coronavirus lasted about a month between late February and late March 2020. After that, it immediately changed to an uptrend. At the same time, against the background of the Nixon economic crisis in the United States, the bear market lasted almost a year (between 1972 and 1973). The state of the economies of the world’s most developed countries is usually the best indicator of what the financial market will look like.
Although the causes of bear and bull markets are easy to explain in hindsight, they are difficult to predict in advance. The reason for this is the human factor. It is not clear when exactly supply will exceed demand in the market and trigger the first wave of falling prices.
Bulls and Bears in Crypto markets
The cryptocurrency market is quite young. Cryptocurrencies only appeared at the end of the “zeros” (taking the Bitcoin whitepaper release in 2008 as a point of reference).
At times, the lack of understanding people trading on exchanges have about the nature of cryptocurrencies contributes to the volatility and instability of this market. Crypto usually follows a trend similar to stock markets when bear markets are replaced by bull markets. The main difference is the depth of the falls and the amount of price growth.
Take the 2022 bear market for comparison. The cryptocurrency bear market started way back in November 2021 and is now ongoing. The bear market in the stock market started a few months later – in January 2022.
From the February 2022 highs to the June 2022 low, the S&P 500 Index fell from $4,504 to $3,667, or 18.6%. At the same time, Bitcoin’s peak price fell from $69,000 to $19,018, or 56.7%.
It is important to note that we compare the most stable cryptocurrency against an index that includes 500 companies. Compared to other cryptocurrencies and assets, the difference will be more noticeable.
Such swings in the crypto market have often been seen since 2017, when various coins and tokens gained popularity. Therefore, bearish and bullish cryptocurrency markets are more pronounced in terms of ups and downs.
How do you survive bull and bear markets?
Investments are always associated with risks. Investing in stock markets is considered to be one of the riskiest investment opportunities. And the cryptocurrency market is even more risky due to greater swings in bearish and bullish phases. Investment strategy depends on each investor’s goals, ability and risk appetite. At the same time, it makes sense to limit risks by investing part of the funds in various assets.
An analogy with baskets and eggs is appropriate here: you should never put all your eggs in one basket because if it falls, all the eggs will break. The same philosophy should apply to investments – it is necessary to invest in different assets. Basically, the higher the risk, the lower the amount invested.
For example, only 10% of the total investment amount can be invested in stocks and 5% in cryptocurrencies. Other funds are better off buying fixed income instruments like bonds.
This approach makes bear markets easy to pass. If there is only a small amount of money in the crypto, there is no point in selling it in a falling market. It is better to wait for the switch to the bullish market and then take profit.
It is important to be patient and not to make hasty decisions. Incidentally, buying in a bear market when everyone is panicking and selling is considered the pinnacle of skill.
About the author
Vladyslav Zadorozhniy is the founder of CryptoCrew, the rapidly growing crypto education community. The main goal of the team is to explain to users that cryptocurrencies are not about “easy and quick money”, but about knowledge, skills and abilities. They have 95,730 active subscribers on Telegram and 12,000 subscribers on YouTube
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