When you’re only starting crypto investments, it’s vitally important (at least for your finances) to learn some basic terms and strategies to make wise investment decisions and avoid risk. We’ve prepared a short material on two major terms in cryptocurrency trading – bear and bull market.
Animal references, especially if we’re talking about coins and tokens, are pretty vague. Thus, let’s start with a simple explanation of the two concepts. Both bull and bear markets are just the names for the market conditions. They are also applicable to the stock market and real estate.
A bull market is associated with prospering economy, while a bear market, conversely, with a recession. However, these tendencies can be traced only over an extended period of time because the crypto market, in general, is volatile. That is why if investors observe some dips and fluctuations in a coin’s price, let’s say, within one month, it’s not necessarily a sign of the market transition from a bull to a bear one. On the contrary, the division relies on long-term trends and predictions. Numerous factors should be considered here, including the economic situation and pandemics. One more significant moment here is that the widely accepted number for understanding whether you’re dealing with a bull or bear market is either growth or decline of at least 20% from recent indicators.
Now, we will briefly go through the crucial market characteristics to understand the differences:
A bullish market is known for low supply and increased demand. For instance, a cryptocurrency market, as a whole, is definitely a bull one. What’s more, this trend will last for the next few years. At the same time, some token market that is continually dropping in price will be called a bear one. In this case, the supply will be large, while the demand will be small.
Market sentiment is a basic term to outline investors’ views and predictions. If they believe that the market is profitable, they invest more money, which, in its turn, strengthens the market and vice versa. This was an example of a bull market. A bear market occurs when investors are typically more hesitant with spending their money, which, consequently, doesn’t help to build up demand.
All financial markets are inevitably connected with the economy. That is why large economic tendencies also have a huge impact on bull and bear markets. Bull markets tend to be the feature of a thriving economy, while bear markets are more typical for a stagnating economy.
Currently, in cryptocurrency, most investors are in a bull market. The investment strategy here is to buy coins at a low price and sell them when the value increases. Even if the price decreases insignificantly, it should be a minor loss because according to the overall uptrend, the market can recover in the future.
A bull market is considered to be move safe, but it doesn’t mean that there are no chances of making money in a bear market. One of the options to make a profit here would be to engage in short selling. Probably, the most useful and sane advice is not to panic when the price is dropping. Remember about the long-term perspective and take your time to do research on cryptocurrencies and market changes, for instance.
All in all, a diversified portfolio can keep your nerve and save you money. Bear and bull markets are not very complex notions but they do require time and effort to figure out which one is better for your investing strategy.
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