Wondering what a bull and bear market is? As we assist you in navigating the markets more confidently, in this piece we take a look at what is a bear market exactly, how it differs from a bullish one, while also taking a quick look at where these terms came from and the biggest Bitcoin bull and bear markets to date. Not specific to crypto trading, bull and bear terminology is used across all trading markets.
What Is A Bear Market?
Diving right in, a bear market is a term used to describe when the market is on a decline, when investors are selling rather than buying and the supply outweighs the demand. When prices continue to fall for a period of time, traders refer to this as a bear market. You might also hear phrases like “the bears have taken hold of the market” or “bearish sentiment”, this follows the same concept (indicating a decrease in price action).
Bear markets can be triggered by anything from adverse legislation, like China banning cryptocurrency trading, to bad press (Elon Musk announcing that Tesla will no longer be accepting Bitcoin as a payment option).
Due to markets being susceptible to volatility, bull and bear markets usually refer to downward swings of around 20% and look at longer periods as opposed to trading activity in a day or smaller time frame.
What Is A Bull Market?
A bull market, also known as a bull run, refers to periods where prices are on the rise, market confidence is elevated, demand outweighs supply and investors are buying. Generally, as prices start to increase and the bull run begins, more investors are inclined to buy which further fuels the bullish sentiment.
As crypto markets are largely influenced by the confidence of traders, market sentiment is a good measure of where the market might be headed. For instance, if the market sentiment is positive this is likely to lead to a rise in price as more investors buy into the cryptocurrency.
How Do You Know When A Bull or Bear Market Is Over?
At some point, the markets are likely to turn and the bull or bear run comes to an end, but distinguishing the end of a bull or bear market from dips along the way is not easily done. In fact, it is notoriously difficult, even for the top traders.
During any trading period, there are likely to be small fluctuations and corrections along the way. This is why it is imperative to look at longer time frames to get a broader perspective of the market to distinguish if it’s a minor correction or a major trend reversal.
While bear markets sound negative, many investors use the opportunity to enter the market at a low cost. This is also referred to as “buying the dip”, where traders buy an asset when it is trading at a lower price than usual. While day traders might take advantage of sudden dips in the market, these are not referred to as “bear markets” as such.
What Are Bulls And Bears?
These terms are used to describe market conditions as well as people actively involved in the market. Traders who are optimistic about the future of a cryptocurrency are referred to as bulls while people with a more pessimistic attitude towards the asset are commonly referred to as bears.
Someone vocal in the market about the price increasing is often referred to as a Bitcoin bull.
Where Do These Terms Come From?
Bulls and bears have been used in the trading industry for centuries, with no definitive origin. Some say that it was established due to the way these two animals attack - bears swipe downwards with their claws while bulls thrust their horns upwards.
Etymologists point towards a proverb from the 18th century which centred around “don’t sell the bear's skin before one has caught the bear”. “Bearskin jobbers”, as they were known, was used to describe someone selling bearskin they were yet to get (borrowed stock) with an agreed upon delivery date in the future, expecting the price to decrease so that when they later bought the stock they would keep the spread.
The idea was that the stock prices would decrease over time, with the difference in price kept as profit. Later shortened to bear, the term was used to describe a downturn in the market.
Around the same time, the use of the bull term emerged too and referred to a speculative stock purchase with the expectation that the prices will rise. As with both terms, they were used to describe both the person doing the action as well as the stock itself.
Bitcoin Bull Run History
Before we dive into the history of Bitcoin’s biggest bull runs, let us first observe that the most notorious bull runs took place roughly a year and a half after each halving, causing significant leaps in breaking new price records. Halvings on the Bitcoin network are automatically instigated every 210,000 blocks (roughly every 4 years) and cause the miner’s reward to be halved.
After the first halving in May 2012, the price at the time was roughly $11, which grew to $1,075 nineteen months later (end November 2013). The next halving took place in July 2016, when Bitcoin was trading at around $650. By December 2017 it peaked at over $19,000. May 2020 marked the date for the next halving, instigating the epic bull run of 2021 which saw the cryptocurrency reach its current all-time high of $64,863.10 in April.
With plenty of bull runs in between, the halvings are notorious for spearheading significant price increases in the months to follow.
Bitcoin Bear Market History
As mentioned earlier, a bear market is declared when the value of a cryptocurrency (or any asset) drops by 20%. The most significant bear markets to date have occurred in 2011, 2015 and 2018, where the market lost over 80% of its value.
Looking at the 2011 bear market, after being in existence for only 2 years the Bitcoin price dropped a whopping 92% from a then all-time high of $30 in June to $2.50 in November.
Referred to as the first crypto winter, this bear run coincided with the Mt Gox exchange’s demise. Over a period of roughly 14 months the market lost 84% of its value, moving from highs of $1,000 to lows of $200.
The next crypto winter took place after the bull run of 2017, where the price dropped roughly 85% from highs of $19,500 to lows of $3,250 in a 12 month period.
Bear markets are inevitable for all trading markets and should not be considered “the end”. To put this statement in perspective, note that Bitcoin has been declared dead 430 times since its inception.
Bulls And Bears
Being aware of the rises and falls of any asset is valuable if you wish to gain a bigger understanding of the market and trading history. Used widely across many trading industries, understanding the difference between bull and bear markets can provide valuable insight as well as contribute to building insightful trading strategies.