Any financial market operates in cycles, and the cryptocurrency market is no exception. These cycles constantly alternate, compelling all investors and traders to quickly adapt to new rules and conditions.
In this comprehensive guide, we'll tell you everything about bull and bear markets and how to benefit from them.
Introduction to market cycles
Let's take a closer look at this pattern and delve into how the market cycle works.
Definition of bull and bear markets
When we talk about market cycles, we most often refer to two global trends—bull and bear markets. They constantly replace each other and can drastically change the market in no time.
To begin with, let's define a bull market. The bullish market phase is a favourite period for many investors when asset prices rise rapidly, and the market sees many new projects and currencies.
A bear market is the complete opposite. In the bearish phase, prices of cryptocurrencies or other assets fall, forcing many players—even large and experienced ones—to exit the industry.
Historical overview of market phases
Here's a compressed chronicle of the previous market trend shifts:
Bull Cycle 2009-2011:
Events: Launch of Bitcoin (BTC) and rise of the cryptocurrency exchange Mt. Gox.
All-Time High (ATH): $32 in June 2011.
Bear Cycle 2011-2013:
Events: Mt. Gox collapse, loss of trust in cryptocurrencies.
All-Time Low (ATL): $0.06 in November 2011.
Bull Cycle 2013-2017:
Events: Cryptocurrencies become a new class of financial assets, BTC gains popularity, new cryptocurrency exchanges emerge.
ATH: $20,000 in December 2017.
Bear Cycle 2018-2020:
Events: Regulatory scrutiny increases, legal uncertainty surrounds digital assets.
ATL: $3,100 in December 2018.
Bull Cycle 2020-2021:
Events: Corporations and institutional investors adopt cryptocurrencies, decentralised finance (DeFi) sector is on the rise, non-fungible tokens (NFTs) gain popularity, and altcoins are widely accepted.
ATH: $68,000 in November 2021.
Bear Cycle 2022-Present:
Events: Geopolitical tensions, regulatory challenges in the sector, Terra Luna and FTX collapse, issues with the largest crypto exchange Binance.
ATL: $17,000 in June 2022.
Currently, many experts hold different views on whether we have entered a new bull market phase. Some claim that the bear cycle has already ended, citing Bitcoin's new high of $73,738 on March 14. Others point out that altcoins are not yet showing consistent growth, suggesting it might be too early to declare the full onset of a bull phase.
Characteristics of bull markets
Let's delve deeper into the more positive aspects of these market cycles and understand what a bull market is.
In the world of cryptocurrencies, a bull market, or bull run, refers to a period when cryptocurrency prices demonstrate significant growth. It is usually characterised by positive news and investors’ optimism.
Features of a bullish phase
Here are the main characteristics distinguishing a bull market from other trends:
1. Price growth. During this cycle, the price of the leading cryptocurrency in the market, Bitcoin, and other coins increases. The growth can be rapid or gradual and last from several weeks to several months, even up to a year.
2. Emergence of new players. As prices rise, investors and traders profit, prompting more people to enter the market to capitalise on the crypto bull run.
3. Increase in trading volume. Both old and new investors begin to buy and sell more to seize every opportunity for profit. As a result, trading volumes during a bull market significantly increase.
These three points serve as the hallmark of any bull run, whether it's in the cryptocurrency market or any other financial market.
Impact on investments
The bull cycle undoubtedly has a significant impact on investors and their investments. Let's understand how it affects investors and their finances.
1. Profit growth. This pleasant feature is directly related to the rising prices of cryptocurrencies. During a bull run, investors who managed to invest in a coin before its price spike can sell it at its peak and remain in a very profitable position.
2. Increase in confidence. Investor sentiment undergoes significant changes in bull periods. Riding the wave of rising prices, many players become more confident and optimistic. They start to believe that the price and profit growth will never end, potentially leading to further investments in coins.
3. Emergence of new opportunities. The overall positive market sentiment can spur further industry development. During bull markets, new cryptocurrencies are often launched, new projects are initiated, and various initiatives such as ICOs and IDOs take place.
A bull market is an excellent opportunity for investors to profit from their investments and capitalise on the rising prices of cryptocurrencies. However, bull runs don't last forever. A bear market always follows even the most significant growth.
That's why it's crucial to always remember not to invest more in digital assets than investors can afford to lose. Here are some basic rules that help you keep a level head during a crypto bull run:
- Don't succumb to emotions. Excitement and euphoria can blind even the most rational person. During bull markets, it's crucial to think clearly and consider potential losses.
- Remember the long-term perspective. It's important to have trading strategies that look several steps ahead. This way, investors will know for sure of what awaits them after the bull run ends.
- Use risk management tools. Sound risk management is relevant in any market situation.
These simple rules can help investors maximise profits and minimise losses. The key is not to mix them up!
Characteristics of bear markets
Now, it's time to delve into the more sombre of these two market trends. So, a bear market is a period of prolonged decline in prices. It is characterised by heightened investor pessimism, as investors fear further price declines and sell their cryptocurrencies.
Features of a bearish phase
Here are the distinctive features that will always help you recognise a bearish market cycle:
1. Price decline. Prices of Bitcoin and other cryptocurrencies start to fall. The cycle lasts as long as the bullish one—from several weeks to several months.
2. Exit of players from the market. Investors who have already incurred losses fear losing even more money. Therefore, they leave the market in anticipation of a "thaw."
3. Decrease in trading volume. Fewer crypto projects and traders remain in the market. They execute less transactions and cryptocurrency trades. Consequently, trading volume decreases.
Overall, the bear market is a mirror reflection of the bull market. The bearish phase affects not only the cryptocurrency market but also many other sectors, for example, stocks.
Managing investments during declines
The bearish market cycle poses a special danger to investors, as it entails the following consequences:
1. Financial losses. Investors who bought cryptocurrency before its price decline will inevitably incur losses. Moreover, these losses can be very significant.
2. Decrease in confidence. Investor sentiment changes in the opposite direction: uncertainty and lack of confidence prevail in the markets. Investors doubt whether they will ever make a profit from their crypto investments.
3. Disappearance of projects. As a result of the pessimistic market sentiment, investors escape the market. The reduction in investment inflows leads many cryptocurrency projects to close or undergo drastic changes to survive the recession. Moreover, new players and projects are not eager to take the place of their predecessors, so the industry empties.
The bearish cycle is a serious challenge even for most experienced investors. However, it is merely an inevitable part of any market, so learning to cope with it is crucial. Like the bull run, the bear market will not last forever.
Nevertheless, this harsh time presents its own opportunities. Here are some popular strategies that investors and traders often resort to during bear markets:
- Maintain calmness. During bearish cycles, negative phenomena such as FUD (Fear, Uncertainty, Doubt) and FOMO (Fear Of Missing Out) often flare up. Many investors remind themselves that selling their assets during fear and panic is often a bad idea.
- Leverage emerging opportunities. Experienced investors know that they can buy many cryptocurrencies at a good discount.
- Review strategy. Several trading and investment strategies have proven themselves particularly well during bear markets. We'll talk about them a little later.
Bear markets vs bull markets may seem like an unpleasant period. In part, this is true, but experienced investors know how to profit from recession moments. Cold logic and risk and emotion management help traders wait for a new wave of the bull market and profit from cryptocurrencies they hold.
Comparing bull and bear markets
Bull and bear phases are two sides of the same coin, existing within the same market and constantly alternating. Let's delve into what they have in common and how they differ.
Key differences and similarities
Bull vs bear market resemblances:
1. Volatility. Both cycles are characterised by market volatility—the degree to which cryptocurrency prices change. During both bullish and bearish phases, volatility can be high. This implies that in the short term, the market may experience significant price swings—upward during bull markets and downward during bear markets.
2. Investor psychology and sentiment. The situation here is twofold. On one hand, the cycle's initiation and establishment heavily depend on investor sentiment and their reaction to news and events. On the other, the phase of the cycle determines how market players will react to what's happening. Optimism during bull markets can lead to excitement, while pessimism during bear markets can lead to panic.
3. Temporal nature. We've mentioned this aspect several times. The essence is that neither of these phases can last forever. Typically, cycles alternate within weeks or months, but these timelines can vary depending on the current market conditions.
Let’s delve into bearish vs bullish phases differences.
The main difference lies in how each phase impacts investors. In a bull market, the potential for profit increases, but so does the risk of loss.
In a bear market, investors may incur significant losses. However, they also have the opportunity to purchase cryptocurrency at lower prices, which could be an excellent long-term investment that yields profits in the next bull run.
Strategies for each market type
Now that we've delved into the distinct differences between bull and bear markets, it's crucial to tailor our investment and trading strategies to match the market phase.
Trading strategies for bull markets include:
1. Trend trading. This strategy involves buying assets that have begun to show significant growth and are likely to continue rising. The essence lies in selling the purchased digital assets at a higher price later on.
Successful trend trading requires a deep understanding of market trends and technical analysis.
2. Reinvesting profits. This approach entails using profits obtained from cryptocurrency to purchase additional digital assets. Over the long term, this significantly increases the investment portfolio.
The strategy of reinvesting profits works well in conjunction with portfolio diversification. The latter allows one to capitalise on the growth potential of both established "blue-chip" assets and emerging coins.
Fun fact! Diversifying a cryptocurrency portfolio is one of the most popular investment strategies. It remains relevant in all seasons, both in bear and bull markets, so even a bull bear can use it.
3. Arbitrage. This method capitalises on the price difference of cryptocurrencies across different exchanges. The idea is to buy a digital asset on an exchange with a lower price and quickly sell it on an exchange with a higher price.
Arbitrage is particularly effective during bull market phases, as rapid price increases often lead to discrepancies in trading platforms, presenting excellent opportunities for arbitrage trading in cryptocurrencies.
Here are investment strategies for bear markets:
1. Holding, or long-term investing. This entails purchasing and holding onto cryptocurrency for an extended period, irrespective of short-term price fluctuations.
Many investors view price declines as an opportunity to acquire cryptocurrency at favourable prices. The most challenging aspect of this strategy is resisting emotions and refraining from selling all purchased crypto during significant downturns.
To accomplish this, seasoned market participants often advise newcomers to transfer their holdings to a cold wallet. This helps safeguard against impulsive actions associated with selling digital assets.
2. Dollar-Cost Averaging (DCA). This revolves around one core principle—consistency. Investors regularly invest a fixed amount of money into cryptocurrency regardless of market conditions. DCA allows investors to buy more coins when prices are low and fewer when prices are high.
Over time, this approach averages the purchase price and mitigates the impact of volatility on investments.
3. Staking. Staking refers to the deliberate act of holding cryptocurrency in a wallet to earn rewards.
Staking helps generate passive income during bearish phases, reduces the portfolio's vulnerability to volatility, and protects against emotional selling.
Conclusion
In this article, we've aimed to provide you with as much information as possible to ensure your understanding of market cycles is comprehensive. To reinforce these insights, here's a summary for you:
1. Market behaviour is cyclical, with phases constantly transitioning. These cycles typically last from a few weeks to several months.
2. Bull markets are favoured periods characterised by:
- Rising prices and profits.
- Increased trading volume.
- Influx of new players and projects.
- Confidence and optimism prevailing in the market.
3. Bear markets, on the other hand, are prolonged periods when:
- Prices and profits decline.
- Trading volume decreases.
- Players and projects exit the market.
- Uncertainty and pessimism dominate the market.
4. Each phase has its set of best investment and trading strategies. For bull markets, these include:
- Trend trading.
- Reinvesting profits.
- Arbitrage.
5. For bear markets, cryptocurrency strategies such as:
- Holding.
- Dollar-cost averaging.
- Staking can be suitable.
Looking ahead, market cycles will continue to evolve. To ensure you don't miss out on the next bullish phase and witness Bitcoin reaching new all-time highs, stay tuned with us and keep reading the itez blog!
🤔 Do you think the new bull market has already started? Share your views in our socials!
💌 Telegram, Twitter, Instagram, Facebook
Here are three other cool articles:
What is Bitcoin mining? An in-depth guide
Comprehensive guide to The Open Network (TON) and Toncoin
This article is not investment advice or a recommendation to purchase any specific product or service. The financial transactions mentioned in the article are not a guide to action. It’s not intended to constitute a comprehensive statement of all possible risks. You should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.
