Bull and bear markets explained

Bull and bear markets, explained

Bull and bear markets explained

We often hear of cryptocurrency “bull” and “bear” markets but what does it mean? Here’s our explanation, in simple terms. 

What’s the difference between a bull and a bear market?

In investing, bull and bear are respectively symbols for upward and downward price trajectories. The origins of these symbols are unclear but since a bull tends to thrust its horns up, like in the Wall Street Charging Bull sculpture, it makes sense for it to symbolize positive market trends. On the other hand, bears swipe their claws downwards, which fits downward market movements.

To know whether a market is in a bull or bear phase, two features particularly matter:

  • The trajectory needs to be significant in volume. There is no clear-cut rule but the price being up 20% from a low-point or down 20% from a high-point is often considered a good guideline.
  • The trajectory needs to be sustained in time. The price going up a lot in a day doesn’t constitute a bull market in itself nor does a sudden drop guarantee a bear market. The trend needs to be sustained over the course of some weeks.

The distinction between bearish and bullish phases applies pretty much to every market, whether it be crypto, stocks, real estate, commodities, etc.

A measure of market sentiment

Bull and bear also signal feelings of optimism or pessimism, either on the part of an individual investor or of the market. This is why you’ll hear investors being “bullish” on a certain asset despite its price being down: They believe the long term trajectory of the asset is upward, even though the market doesn’t appreciate it yet. Amazon’s stock, for instance, has dipped severely several times in the past but some investors remained nonetheless bullish – they were optimistic about the long term prospects of the company.

In a typical bull market, demand exceeds supply: More people want to buy than there are people who want to sell. But because the number of people who want to buy is influenced by how much they think the market is going to rise, guessing how other investors feel or will feel — the “market sentiment” — matters to position oneself as a bull or a bear.

Short-term vs long-term views

Even during a bull market, there will be corrections with the price going down. Bulls with conviction will call these corrections “dips” and in crypto some investors will loudly be “buying the dip”: They think the trend remains bullish long term and see the lower price as a momentary opportunity to buy more.

This is why studying the fundamentals of an asset and its long term trajectory is so important to judge the fluctuations of its price. Daily and weekly market movements can be impressive, scary or exciting but taking the long view is key to building wealth.

U.S. treasury bonds, for instance, are known to be very stable day to day, they rarely get into significant or sustained bear phases. Bitcoin and Ethereum, on the other hand, have lost more than 40% of their value in May against their all time highs. This is the short term view. 

Now compare the long term performances of these assets:

Crypto versus other Assets Performance

That’s right. Long term, Bitcoin and Ethereum have outpaced all other assets in existence, by orders of magnitude. This background is important to keep in mind when looking at short term price fluctuations.

Strategies for crypto bull and bear markets

Investors who have confidence in the long term value of an asset often see bear markets as opportunities to increase their allocation. They might recommend a couple of actions to relieve anxiety for volatile assets.

  1. Have funds ready to buy more when the price dips. The Okcoin app makes this easy with personalized price alerts – if the price dips under a certain threshold, you’re notified and can take advantage of it immediately. Try the app
  2. Set up recurring buys. Because trying to time the market is extremely difficult and stressful, you might prefer setting up automated recurring buys to lower the impact of bear and bull volatility. Okcoin also offers this feature. Learn more

This post is for educational purposes and is not investment advice.