In the financial world, the terms “Bull” and “Bear” are commonly used to understand the overall performance of global stock markets – hinting at whether the market is decreasing or increasing in value. With that in mind, a bull market refers to a market that is appreciating in value, and a bear market is one that is declining in value.
Given that the market for stablecoins shows a continual rise and fall in prices on a consecutive basis owing to inflation and volatility, the terms bull and bear point to extended periods of either an appreciating or depreciating movement. Similarly, these increases and fluctuations in the cryptocurrency industry are signified by considerable market swings (at a minimum of 20%) in either a bullish or bearish direction.
In light of this, we’re going to take a deep dive into understanding what bull and bear markets are, the differences between them, and how can they be applied to the digital asset marketplace.
Understanding a Bullish Market
A bullish market trend is an indication that the market is experiencing stable or lucrative economic conditions. It signifies that the market is appreciating in value both in terms of prices and investor confidence.
Moreover, in a bull market, investors also enjoy favourable asset prices, and it generally means that the economy is getting stronger. Businesses flourish and the rate of employment increases. The same concept is also applicable to farm finance in the cryptocurrency industry. However, in the digital asset arena, it is typical to experience stronger and more stable bull-run stages.
But what does a bull run mean in the crypto industry? A bullish crypto marketplace is usually indicative of a 20%-40% increase in value in 1-2 days. Compared to traditional markets, this time span is relatively short because the digital asset industry is still in its infancy.
What Makes a Market Bullish?
A bullish trend in any marketplace begins with the investors. This is when they analyse and speculate that stock prices or prices of commodities will likely continue to increase for the foreseeable future. The investors begin to invest in more stock at a relatively lower price and sell them at a greater price therein, optimising their ROI.
But because the global cryptocurrency marketplace is relatively newer compared to the traditional market and has a considerably lower number of investors, a bullish trend in the crypto arena will depend on things that are unique to the digital asset industry. These factors could be:
- Support from mainstream media
- Support for crypto amidst popular celebrities and business moguls
- Injecting institutional capital into a specific crypto
Understanding a Bearish Market
A bearish market trend in the crypto industry indicates a continuing decrease in value and market sentiment. Cryptocurrencies that experience a 20% decrease in value, consistently, signify that the market is going down. A good example can be the crash of Bitcoin in 2017 when investors saw the price of BTC decline to $3,200 from $20,000 in 2-3 days.
In a bearish market, cryptocurrency investment falls and some traders seek to buy digital currencies that hit rock bottom only to sell them at a slightly higher price in the future. However, there is no exact science in knowing when a bearish market trend ends, which means the best crypto to buy can be a gamble.
What Makes a Bearish Market?
A declining trend in yield farming and DeFi crypto is what usually causes the digital currency market to come into its bearish phase. Several factors can result in a bearish market, for example, global pandemics, wars, inflation, rising unemployment levels, political turmoil, etc. are all common triggers.
While the causes can differ, certain economic indicators may help you identify whether the cryptocurrency marketplace is entering a bearish phase. The indicators include:
- Decreasing trade volume
- Federal intervention
- Declining investor confidence
- Rising inflation
Important Differences Between a Bullish and Bearish Market
So, how do you differentiate between a bullish and bearish crypto market trend? Good question. Although both types of trends are largely indicated by the price trends of different cryptocurrencies, there are some important factors you should know to easily differentiate between the two. However, it is equally important to understand that the impact of a bull or bear market on digital assets is typically the same as a traditional marketplace – such as the stock market.
Let’s take a look at some primary factors that serve as key differences between bullish and bearish cryptocurrency markets.
The Effect on Demand and Supply
In a bullish crypto market, the value of digital currencies continue to increase while the supply weakens. This is when a majority of traders look for the best crypto to invest in and hold as many cryptos as they can. This naturally increases the level of competition in the market, consistently driving the value upwards.
In a bearish market, investor confidence significantly drops and more traders willingly sell their crypto vaults. This increases the supply of different digital assets while the demand hits rock bottom, further lowing investor APY.
The Impact of GDP
The increase in the gross domestic product (GDP) indicates a bullish market while a fall in a country’s GDP drives a bearish market. A rise in GDP signifies economic stability. The employment rate increases, companies experience an increase in revenue, and annual employee salaries rise. All of this helps encourage more consumer spending.
Investor Confidence and Outlook
Investor confidence and willingness and the digital asset industry are closely connected. During a bullish trend, traders are more likely to invest in projects in hopes to increase their ROI. In a bearish market, however, investor sentiment severely dwindles. This is when traders begin to panic-sell, consistently pushing prices down.
Bullish and bearish digital asset markets are driven by a variety of reasons. And because the crypto industry is relatively newer, the volume of investors in it is significantly lower compared to a traditional marketplace. This makes it essential for you to conduct in-depth research and due diligence when investing in smart contracts.