What is a bull and bear market in crypto?

You might wonder why people into bitcoin, other cryptocurrencies and, in fact, all forms of stocks and shares are preoccupied with bulls and bears. What exactly do they have to do with investments? Well, they’re quite an integral part of the ebbs and flows of trading and #hodling. Why? Strap in, because we’re about to dispel your confusion about the whole thing right now.

Let's start with the bears. What have they got to do with crypto?

First off, with both the bear and bull thing, we need to get into the market aspect of crypto.

A market is usually a trend, pattern, or general state of how things are going. Humans live in society, coins live in a market – that’s more or less the gist of it. A market can be either performing averagely or, well, badly. If the price of a stock is declining, it’s performing badly.

If it performs badly consistently, or dips under the generally accepted figure of 20 per cent for a prolonged period of time (anywhere from six weeks or so), then you can be considered to be in or entering a bear market. So it’s a declining market, basically. A recent example is the state bitcoin was in from 13^th May 2021 to 31^st July 2021, as seen on a coindesk graph here.

But why is it called a bear market?

Ever heard the phrase “to sell the bear’s skin before one has caught the bear”? Neither had we until very recently. But the name basically comes from that, according to the brainiacs at dictionary Merriam-Webster. Another theory is that the namesake is in reference to the way a bear attacks prey, striking downwards. This makes pretty good sense when you consider that the opposite applies to a bull market.

Right. So what actually is a bull market?

Well, the opposite of a bear is a bull, like cats and dogs, which is technically an antonym, but whatever. A bull market is when the value of the bitcoin or altcoin is on the up and up and up (given it’s usually on a constant rise, it’s also referred to as a bull run), and when you’re around a 20 per cent rise consistently across two months or more.

This is also why very optimistic predictions about how much, for example, bitcoin will be worth at a certain time is considered “bullish”. For example, last week Forbes wrote that “bullish crypto analysts at Fundstrat Global Advisors have predicted the bitcoin price could climb as high as $168,000 by the end of 2021 if demand meets sky-high expectations”. This is around 2.8 times the current value and, if it climbed to that, it would be a pretty massive bull market.

Why is it called a bull market?

The bull moniker is more of a reaction to the bear market than anything else. Another animal for the cause, the name likely comes from the idea of a bear striking downwards as we mentioned earlier, but instead, a bull attacks by thrusting its horns upwards. That’s about all there is to it. Bull means up, bear means down.

So does this mean that all bear markets are bad and every bull market is good?

That depends on your position. If you have a tonne of money stashed up in altcoins and suddenly they’re down in value as a result of a bear market, that isn’t ideal. But there’s more to it than that. As with anything, there are opportunities within times of crisis. Assuming the market gets back on track, a bear market can give you a big window for “buying the dip” in the long-term. You have to be careful there though, because a bear market can often mean the investment isn’t a good idea.

As for a bull market, generally there’s room for optimism. The value is going up, after all. As the price rises, more and more people get confident that the train will keep going and so jump on for the ride. Happy days.

The downside comes if you buy into a bull run just as it’s starting to taper off. If the value dips a little, in what’s known as a ”correction” (when the value dips around 10 per cent from its peak), you may find yourself at a loss.

Always remember: if the value has been down for a couple of weeks, you’re entering bear market territory. If the reverse happens, you’re in a bull market. How you respond to the situation is up to you.

So that’s the bull and the bear. Good pub name too. Stay tuned for next week’s crypto column.

Speak to a Financial Conduct Authority registered financial adviser before taking financial advice, and think carefully before making any decision.