Bull and Bear Markets
“Bull market in 2017 …”
“We are closing 2020 with a bull market”
“The bear market in 2018 is boring for us all”
“Bull season in 2020 will be different from 2017”
Picture an imaginary bear and his fellow beast, the bull — two giants of the animal kingdom. Both fearless and stars of the never-ending financial struggle. Sometimes the bull will trample the bear and at other times the bear will maul the bull. Either way their mythological struggle is always in the back of our heads as the quotes above illustrate.
But how exactly do these animal characters steer investment, Bitcoin and other cryptocurrencies?
A bear market describes a period where the market is pessimistic and prices follow a downward trend. They’re usually described as a decline of at least 10% (15–20% is also common) following the previous peak, and despite the expectation of a sustained downward trend, are not time dependent. During a bear market, the demand for cryptocurrencies or the market in question decreases and prices continue to fall.
A bull market is the opposite of a bear market — an increase of at least 10% in an asset’s price. Demand for assets in a market increases and purchases begin to pick up.
Despite the perception that a bull run may be consistent and long term there are actually varying phases in the run. Things begin when large investors start to buy assets sold by existing investors who are making losses or want to exit the market. There is no clear uptrend at this stage and interest in the market is still quite low.
After the collection phase, a positive atmosphere in the market starts to set in. The purchasing phase begins, where investors of all sizes start to join the market, raising transaction volumes. Then, the saturation phase begins. Once a certain level of saturation has been established, people decide to realise their profits and the bull market comes to an end as the number of buyers decreases. After this phase, there’s a high chance of a sharp decline of 15% -20% where the bear market will begin.
The length of bear or bull markets is dependent on the type of asset and environmental factors in the respective market. The two market states may last for weeks or years, certain assets move between bear and bull in a cyclical manner too. The factors bear and bull markets are not purely to do with this supply-demand balance. The psychology of investors, the reliability of the asset and the public visibility or adoption affect the direction of the trend. This applies to all assets, including Bitcoin and other cryptocurrencies too.
Bitcoin and cryptocurrency investors trade using fundamental and technical analysis. Using indicators they interpret the signs of bear and bull markets. If you would like to understand and learn more about how to read price charts, take a look at our article, How to read price charts, here
Why Bear and Bull?
Have you ever asked yourself why the words bear and bull are used to describe these trends?
There are a few stories told about their origin, although there is no conclusive explanation. The most accepted reasoning is that bulls lift their prey up with their horns while attacking, and the bears hold their food to neutralise it by throwing it on the ground.