Bull Market vs Bear Market
The terms “bull market” and “bear market” are used often in the cryptocurrency world to describe price movements. Let’s explore the key differences between them!
Changes in the cryptocurrency market can be extreme, with bull runs leading to some of the best asset performances ever and big profits for savvy investors. However, bear markets can also cause catastrophic losses that new and experienced investors alike may not be prepared for.
When there is more demand than there is supply for a lengthy period of time, cryptocurrencies can see price rallies that last for extended periods. When this happens over the course of months and applies to the entire cryptocurrency market, it’s known as a bull market. On the other hand, an extended decline across all cryptocurrencies would be considered a bear market.
An extended period of positive investor sentiment and growth in an asset’s value is known as a bull market.
When investor sentiment is low and asset values are dropping continually, this is referred to as a bear market. In contrast, when the overall crypto market capitalization grows over a period of 3-6 months alongside increased trading volume, this signifies a bull market. Although there is no official definition of what would determine a cryptocurrency bull or bear market, these standards are often used.
In general, bull and bear markets have the following contrasts:
Trading volume: There is typically more trading volume during bull markets than bear markets. Volume usually peaks during a bull market and troughs during a bear market.
Innovation and growth: More innovation and growth happens in a bull market for many industries. Three primary causes are more money to invest, easier user activation and larger marketing budgets.
User and investor sentiment: The Crypto Fear & Greed Index tracks investor sentiment to predict whether the market is geared towards making profits (bull) or incurring losses (bear).
Startup growth: Bear markets are generally characterized by a lack of new project launches, while bull markets see many debuts that often receive public funding through means like an IDO or ICO.
The cryptocurrency market is constantly changing and evolving, providing investors with new opportunities to invest in promising projects.
In 2021, there were a total of 723 IDOs on 62 different platforms. Out of these, many did not bring substantial returns; however, some turned out to be immensely successful and profitable crypto projects ever made- like Bloktopia, MetaVPad, My Neighbor Alice and WagyuSwap who each achieved more than 200x their initial investment.
Alt Though many IDOs might not have had long-term potential, some still did well in the short term, and now many of the best performers have collapsed far below their original value.
A few examples of this are:
- Dragon Kart had an ROI of 241x at its peak and currently has an ROI of 0.0×7
- Cryptomeda’s all-time high ROI was 185.7x while it is now at 0.07x
- BeyondFi saw a return on investment 175 times greater than the original amount, but that figure has since dropped to only 0.02xs returned today.
Although most top projects have been introduced during a bull market, it’s still possible to find success in a bear market though it is less frequent. Three examples of companies that flourished despite launching during a bear market are XANA, Step App and Sweat Economy — each with ROI rates exceeding 10x their initial investment.
Some launchpads have even managed to maintain a positive ROI, including DAO Maker, which generated an average all-time high ROI of 11.6x across its most recent five IDOs — despite launching them during a bear market.
Cryptocurrencies with the best foundations will normally suffer less during a bear market.
Many investors dread bear markets, as even well-established assets can lose a large portion of their value.
Cryptocurrencies reach great heights in value before inevitably plunging sharly, often by over 88%. Unfortunately, many of these fail to recover their original value even after subsequent market upswings.
Although it may seem counterintuitive, investing in Bear Markets can lead to an extremely high ROI if the asset is fundamentally sound.
Many of the most successful traders follow the motto coined by Baron Rothschild:
“The time to buy is when there’s blood in the streets.”
This term indicates the earnings that could be gained when investors are feeling panicked, for example when market sentiment is very low or after an overreaction to negative news.
On the flip side, bull markets usually feel like the best time to invest because many traders trade perpendicular to the trend and follow where the money is going. Even though this can be somewhat safe early-on in a bull market, as it nears its end, there’s more risk than reward.
Almost every cryptocurrency trader has made predictions about when a bull or bear market will start/end.
By being able to predict whether the market will have a bull or bear trend, an investor could make significant profits.
There is no perfect model that consistently predicts the future.
While there are a few indicators and models to track the bottom and top of a cryptocurrency market cycle, many have only been backtested using historical data. It’s unclear how accurate they are in predicting future behavior.
The Bitcoin Stock 2 Flow Model (S2F) is one of the most popular models for analyzing cryptocurrency prices. It looks at how long it would take to equal the current Bitcoin supply based on its current emission rate and can be used to forecast its potential future price action.
Other popular models for predicting Bitcoin price movements include the Rainbow Chart, which uses colored bands to indicate when Bitcoin is overbought or oversold.
If you’re looking to Bitcoin as an indicator of where the market is heading, ColinTalksCrypto’s Bitcoin Bull Run Index (CBBI) is a great resource. The index measures nine key metrics to show whether Bitcoin is likely at the peak or bottom of its cycle.
While no single indicator will be accurate all the time, some traders think that multiple indicators together can give helpful information.