Who are the bears and bulls in cryptocurrency?
If you are investing in cryptocurrency, you’ll meet certain terminology, that requires additional explanation. There are some words you may know from other areas of investment, such as stocks or real estate. For example, often you can read about bull market or bear market meaning. This terminology was borrowed from stock trading and describes its state and trends. To understand, what is the bull market and the bear market, you need to dive a bit deeper into this theme.
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What is a bull market?
This term is used to describe the period of time, when the majority of its participants are not selling, but buying. This means they are confident that their assets are valuable now and will remain valuable in the future. They are expecting that the prices will rise further, so they want to buy now to get more value later.
This attitude creates a positive feedback loop. The investor, for example, a bitcoin bull, becomes a person, who believes, that the prices are going to rise in the given period. If there are many bull investors, they create high demand, so the values increase even more as an answer to that.
What do bull and bear markets mean for cryptocurrencies?
This is especially important if we talk about assets whose value isn’t related to physical objects. For example, look at crypto in comparison to real estate. The value of the latter is heavily influenced by external factors, like location or transportation availability. The value of cryptocurrency, on the contrary, is heavily influenced by the attitudes of the investors, and the changes in their mood can drastically change the situation.
Some buyers even build their strategy based on the market statement. This means they determine how optimistic investors and the other public are and make decisions about buying or selling based on this information. For example, there are tools that help to estimate, how long will crypto bull market last.
When does the bull market end?
While it could seem, that the bull market supports itself via the positive feedback loop, the price cannot rise indefinitely. Even while it remains under the influence of the current trend, it can experience short-term dips and fluctuations. Thus, if you concentrate on the short-term perspective, it is easy to misinterpret the trend and decide, that the current dip represents the end rising trend. But to find out, if it is the end of the bull market or not, you should look at the stats at a broader scale. To avoid mistakes and losses, always consider different timescales before buying or selling your cryptocurrency access.
Anyways, this state cannot last forever. At some point, the confidence starts to decline, most likely answering to some trigger, in other words, some unfavorable news. For example, if legislation restricting the use of crypto assets is put to action, or political instability is on the rise, or some unforeseen negative circumstances (like the pandemic outbreak) appear, this can cause people to be more cautious. Then the price falls sharply, and this creates a feedback loop of the opposite sort: people start to sell more and more, to avoid losses, and this leads to a further decrease.
Bull market and bear market difference
Bear market means the state opposite to what was described above. Now the investors don’t feel much confidence in their assets, and the prices are falling. This creates a difficult environment for inexperienced traders, as to trade successfully you have to predict when the prices will reach the bottom. This is the right moment to buy because after that the rise begins again. To assume, when exactly prices will start to rebound, you need to closely follow the news, as the influence of the external factors affecting moods and attitudes is very important. This is not necessarily about big news, such as higher rates of economic growth or favorable legislation. The shift can be caused by smaller reasons, like a statement of an expert.
Long/term and short-term strategies for the bull cryptocurrency market
Buying cryptocurrency in the bull market can be profitable for those, who aim for long-term investment. Eventually, the cycle will shift, the bull market will be on the rise again, and the assets bought during the bear period will get gain value. Following short-term strategies on the bear market can be more difficult, as it requires recognizing small changes, like price spikes, and acting quickly on them.
To lower the risks in the rapidly changing world of cryptocurrency, some crypto-investors use the strategy known as dollar-cost averaging. This means investing a fixed amount of money every month, no matter what the trend is. This allows making profitable investments through the periods of both bull and bear cryptocurrencies.
How did these terms originate?
Now, when you know, what is the bull market and the bear market, you may still be curious, why are they called like that. The most common version is, that this comes from the way, how both animals attack: the bear hits with its paw, swiping downwards, and the bull tries to raise an enemy on its horns. There are also different interpretations, but no matter, which one is right, knowing how to act on the bull market and bear market are crucial if you want to succeed with investing in cryptocurrency.