Bull Vs Bear Markets: The Ultimate Guide

2023-05-11, 08:46

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## [TL; DR]
A bull market occurs when the price of an asset increases by 20% or more from its previous low.

A bear market occurs when the price of an asset falls by 20% or more from its previous peak.

During crypto bear markets investors can use dollar costing averaging, buy-the-dip and hodling strategies to maximize their gains.

Traders should use necessary risk management strategies like stop losses and take-profit during bull markets.

## Introduction 
The crypto market, like the stock market, can experience periods where the values of assets rise or fall. The terms bull and bear denote the nature of a security market whether the asset is appreciating or depreciating. This article explores bull market meaning, bear market meaning and the difference between the two markets. It also discusses the best investment strategies for each of the two crypto markets.

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Bull and Bear Markets - Dailyfx

## What is a bull market? 
A bull market is a period when the price of a security is rising and there is much investor confidence. In fact, there is a sustained increase in the value of an investment asset with a minimum price rise of 20% from a previous low. In most cases, a strong economy and rising employment, among other positive fundamentals, push prices of cryptocurrencies up.

Notably, during a bull market the demand for investment assets such as <a href="/zh-tw/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> will be higher than their supply.

Read also: [Crashing Banks Push Crypto towards a bull market](https://www.gate.io/blog_detail/2397/crashing-banks-push-crypto-towards-a-bull-market "Crashing Banks Push Crypto towards a bull market")

## What is a bear market? 
A bear market is the opposite of a bull market since the price of an asset will be falling, accompanied by low investor confidence and a weak economy. Specifically, there is a bear market if the price of a cryptocurrency decreases by at least 20% from a previous high and continues to fall. As a result, the downward price spiral dampens investor confidence leading to further decreases in the value of the asset.

During a bear market the economy slows down, accompanied by high unemployment rate and other negative economic factors such as rising inflation as well as increasing interest rates.

It is also essential to note that during a bear market the supply of an  investment asset like ETH will be greater than its demand.

Read also: [How Crypto Bear Market Turns into Bull markets](https://www.gate.io/blog_detail/1991/how-crypto-bear-market-turns-into-bull-markets "How Crypto Bear Market Turns into Bull markets")

## Causes and indicators of a bull crypto market
Basically, there are certain economic conditions that support bull markets. For example, bull markets, usually, occur when the economy is performing well  and is supported by rising gross domestic product (GDP).

During such periods most businesses record profits and the level of unemployment will be falling. As a result, there is high disposable income which enables consumers to spend part of their money to invest in stocks and cryptocurrencies.

The starting point for a bull market is an increase in investor confidence. When the investors feel that the price of a cryptocurrency may rise in the near future they purchase when its price is low with the hope of selling it when its value increases.

The increase in demand for a cryptocurrency will lure more investors to put their funds in the asset. That pushes its price up.

However, there are other factors that drive up prices of cryptocurrencies during a crypto bull run. Mainstream culture support, institutional investments, improved regulatory environment and unique events such as election victories for crypto-friendly presidents can all push prices of cryptocurrencies up.

Read also: [Bitcoin Halving: Countdown to Crypto Bull Market](https://www.gate.io/explore/bitcoin-halving-countdown "Bitcoin Halving: Countdown to Crypto Bull Market")

## Indicators of a bull market
Now that we have looked at the causes of a bull market, let’s briefly explore the indicators of a bullish crypto market.

The main indicators of a bull market include sustained increase in prices of cryptocurrencies, rising demand for the asset, positive news about the security and increasing investor confidence. In addition, good news leads to a rise in prices of the assets while bad news has an insignificant impact on the market.

## Causes and indicators of a bear crypto market
There are various factors that promote the emergence of a crypto bear market. The economy will be slowing down, shown by a decreasing GDP. Also, there will be increasing unemployment levels and falling corporate profits. Negative events such as outbreaks of war or pandemics can lead to bear markets. Government intervention in the economy such as the introduction of crypto regulation or hiking of interest rates may cause a bear run.

As a result of such factors, the investors become pessimistic and cut on crypto investments. Instead, most of the investors will be selling their cryptocurrencies. Once investors lose confidence in the market a downward price spiral of various cryptocurrencies will follow.

## Indicators of a bear market
There are several indicators of a bear market such as falling investor confidence, negative sentiments from TradFi, low trading volume due to increasing uncertainty and lower highs when there is positive news. Also, the market will experience lower lows when there is bad news.

Many economists and investment analysts from the traditional finance sector will talk negatively about cryptocurrencies and other digital assets. In addition, the prices of most cryptocurrencies will continue to decrease as supply of most assets will be greater than their demand.

## Bull vs bear markets: key difference 
Since we have discussed the causes and indicators of bear and bull markets, it’s time to understand the difference between the two market trends. The two are different in terms of supply and demand, Investor sentiment, changes in GDP and the level of unemployment in the economy.

### Supply and demand 
During a bull market the demand for cryptocurrency is greater than its supply.  The fact that many investors want to buy cryptocurrencies while crypto holders are unwilling to sell them drives their prices up.

On the contrary, during a bear market the supply of a cryptocurrency is greater than its demand. In fact, many crypto holders will be willing to sell their crypto assets while few investors want to purchase them. This situation drives their prices down.

### State of the economy
Generally, a bull run occurs when a country’s GDP is rising while a bear market occurs if it is falling. With cryptocurrency, the performance of major economies like the United Kingdom and United States determine the nature of the market. When these economies are performing well the market becomes bullish and when they are depressed it becomes bearish.

### The impact on the economy
Overall, a bear market coincides with a weak economy where businesses fail to generate much income resulting in declining profit levels or even losses. This is because consumers with low disposable income cannot purchase enough goods and services to sustain a strong economy.

On the contrary, a bull market is associated with a strong economy where businesses generate much revenue and profit. The reason is that consumers are willing and able to purchase many goods and services. Since consumers have high spending power, they can also buy stocks and cryptocurrencies.

### Stock prices
Changes in the values of stocks, properties and other assets like cryptocurrencies show the state of the market. Usually, if prices of stocks and cryptocurrencies are rising from time to time the market is bullish. However, if the values of stocks, cryptocurrencies and other assets keep on falling it is a sign of a bearish market.

### Liquidity
There is higher liquidity during a bull market than a bear one. This is because investors have higher confidence during a bullish market which entices them to buy more crypto assets than they do during bear markets.

### Investor sentiment 
Investor sentiment refers to the general attitude of investors towards a certain investment asset within a period which can give a clue about how the market is performing. As noted, investors are more willing to buy crypto assets during bull markets. On the contrary they are willing to sell them during bear markets.

## How to invest during a bear market
Since trading risks are higher during bear markets than bull ones, investors should be careful and employ different strategies during such periods.

### Dollar costing averaging
Probably, the best investment strategy to use during bear markets is dollar cost averaging. This is an investment strategy where individuals invest roughly the same amount of funds in crypto assets within several periods.

For example, one invests around $500 in cryptocurrencies every month for several months. As you can tell, this helps to smooth out the investment over a long period as the investor purchases the same asset at different price levels. 
 
### Diversifying the crypto assets
Yes, buying different crypto assets spreads the risks which is likely to reduce the losses traders make over time. Diversifying the portfolio simply means buying and holding different cryptocurrencies. For example, someone may need to invest in stablecoins, meme coins, top ten ranked cryptocurrencies and other emerging best performers.

To exemplify more, an investor may need to invest in both utility tokens and security tokens. At the same time, he/she buys and holds AI cryptocurrencies, gaming tokens and SocialFi cryptos. Such diversification reduces the risks an investor may face.

### Focusing on the long term
During bear markets it is important to have a long term investment strategy and focus. This means the investor may choose the buy and hold or the hodling strategy. With this strategy a trader, for instance, should be willing to hold a crypto asset for a long period, say one or more years before selling it.

With that strategy, he is not forced to sell the cryptocurrency when the price is depressed. One has to wait until the price rises to his/her target level before selling off his/her crypto holdings. In other words, the investors buy-the-dip and sell when the price rises over time.

Also, some experienced traders sell their crypto assets as soon as they detect downtrends. They would repurchase the cryptocurrency when there is a price rebound.

## How to invest during the bull market?
Although an investor should use different investment strategies during a bull market, it is still important for him/her to diversify his/her portfolio to minimize losses or increase the profit level.

Secondly, it is best to catch the trend early. This means that the investor should invest in a crypto asset when its price starts to rise. With that, the trader rides the trend until it reaches a peak. As soon as he/she sees signs of exhaustion he/she sells the asset.

It is also important to note that one needs to sell his/her assets if there is bad news that affects the value of cryptocurrencies. As such, the trader can invest in less volatile crypto assets like stablecoins. For example, one may provide liquidity in a pair with a stablecoin such as <a href="/zh-tw/price/tether-usdt" target="_blank" class="blog_inner_link">Tether</a> USDT.

Lastly, crypto traders should use various risk management strategies to hedge against potential risks. For instance, they use stop losses and take-profit to protect their gains.

##  Conclusion
In summary, it is important for investors to understand the bull vs bear market dynamics if they want to make profit. Investors should use changes in market indicators to tell when to buy and sell their crypto assets. Investment strategies like buying-the-dip, hodling, portfolio diversification and dollar cost averaging can assist traders to make profit when investing in digital assets such as cryptocurrencies.

## FAQs
### What is a bull and bear in crypto markets?
A bull is a person who buys cryptocurrencies while a bear is a seller of cryptocurrencies. However, these are not permanent roles since someone can be a bull at a certain time and a bear later.

### How long do bear and bull markets last in crypto?
A typical bear market lasts for about 306 days while a bull market can take a few weeks, months or even years. The length of a crypto market cycle depends on other factors such as the existing macroeconomic conditions.

### Is crypto going into a bear market?
Currently, we are in the last days of a crypto bear market. This is so because the market is not yet bullish.

### Who are bears in the market?
Bears are the individuals who are ready and willing to sell their crypto assets at any given time. Worsening economic conditions and lack of investor confidence in the market make bears sell their cryptocurrencies.

### Why do bears sell crypto?
Bear investors sell the cryptocurrencies when they expect their prices to fall. They sell their crypto holdings at a time when they can still make profit. A common strategy for bears is short selling which involves borrowing coins when the price is high and selling them.

### How long is the bear market in crypto?
A typical bear market in crypto lasts 306 days. However, it can be shorter or longer than this depending on the existing macroeconomic conditions and investor sentiment.

### Is crypto still in a bull market?
The crypto market is not in a bull market. However, there are signs that we are in the last stage of a bear market which started in 2022.

### When will crypto winter end?
An average crypto winter lasts for about four years. This means that the crypto winter which started in 2022 may end in 2026.

<div class="blog-details-info">
<div>Author:** Mashell C.**, Gate.io Researcher
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
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