Bull vs Bear Market: Market differences to help navigate the crypto jungle.
Bull and Bear Markets describe how markets are performing and just as the two animals are different, each market could affect your investment differently. Here is how.
The cryptocurrency markets have continued to see top cryptos like Bitcoin, Ethereum and Avalanche continue to dip in prices in a situation that experts refer to as a bear market.
This is one of two market scenarios with the other known as a bull market. A bull market is characterized by sustained periods of price increase. It is common to see the markets described as one of these two whether you are into cryptocurrency, stocks, real estate, or any other asset.
Without going very much into the origin of the attachment to these particular animal names, a simplistic way to look at it is if you have a farm, you are always happy to have a bull there but seeing a bear could cause some panic.
A bull market, also known as a bull run, is a rising market primarily associated with economic prosperity. Here, confidence in the markets is high and investors are eager and able to buy.
As investor confidence rises, a positive feedback loop emerges, which tends to draw in further investment, causing prices to continue to rise. Investors who believe that prices will increase over time are known as “bulls.”
Global history has recorded some good runs of bull markets with notable examples of the boom experienced after World War II that saw the global markets exceed their peaks from before The Great Depression and more recently the collapse of the housing market in 2008 also subsequently led to a bull market in 2009.
However, bull runs can not last forever. While bull markets are fueled by optimism, a change from this results in bear markets that are associated with doubt over the future with an example being the dot com bubble of 2000. Bear markets have more investors looking to sell and this is what results in more price declines.
The current crypto bear market situation has been caused by a number of factors ranging from the regulatory restrictions and bans that different governments around the world have imposed on cryptocurrencies to the drastic increase in crypto projects that is seeing trade volume increase even when prices are dropping.
Bear markets can last anywhere from a few weeks to several years. Since markets are generally influenced by speculation and the more uncertainty looms, the longer the markets could continue to be in this freefall.
This makes bear markets notoriously difficult to trade in especially for inexperienced traders because it is hard to tell when the bottom price has been reached for the rebounding price increase to begin. Pessimistic investors who believe prices will continue to fall in this system are referred to as “bears.”
Even in a bull market, it can be easy to misinterprete the fluctuations and short-term dips as the end of the bull market. This is why it is always important to consider the broader perspective to spot the right signs of a potential trend reversal.
Because of the different prospects of change in both market scenarios, it is possible to either gain or lose a lot depending on your short-term and long-term strategy.
Some investors choose to level out their risk in a strategy known as dollar-cost averaging. Here you set an amount of money to invest every week or month (or however long your investment period is) regardless of whether prices rise or fall.
Whether faced with the uprising horns of a bull market or the down turning claws of a bear market, it is important to always exercise due diligence with investments in order to protect your investment.