Trading crypto in bull and bear markets: Differences

Regardless of what financial asset you trade, you will see rising and declining markets. A growing or receding market is referred to as a ‘bull’ or ‘bear’ market respectively.

Bear vs. Bull Market

A bear market is characterized by a downward trend over a relatively short period of time. A ‘bearish’ market occurs when markets and commodities drop 20% or more due to negative sentiment from investors. A ‘bull’ market is generally characterized by an upward trend of more than 20% after having declined 20% two or more times prior.

These downward and upward trends can go on for weeks, months and even years. However, a market must move at least 20% from a recent trough or peak to reach a true bear or bull status. While bull or bear markets refer to the entire financial markets or sectors or even economies, these terms can also refer to the market for a single asset or group of assets, such as cryptocurrencies. 

The Differences Between Bull & Bear Markets in Crypto

In the crypto world, both bear and bull markets are defined by the direction of cryptocurrency prices. The effect of bull and bear market trends on cryptocurrency is virtually the same as that of stocks. However, there are some differences, which we’ll explore below. 

As cryptocurrencies are more susceptible to fluctuations, crypto markets move faster when upward or downward trends occur. Unlike the stock market, bull or bear markets are not easy to spot in the crypto sector. The recovery of crypto markets from a bear or bull market greatly depends on investors’ feedback. For example, an investor normally enters a bull investor mode when the market is recovering from a bear market which causes the prices to go up faster. 

Crypto bull markets tend to be short-lived and move faster than stock markets. They typically last only for several days or weeks. Similarly, investors slowly decline when the bull market grows stronger.

As crypto prices drop during bear markets, crypto traders buy more so that they have higher chances of making a profit when a bull market emerges. However, buying during a bullish market can also be beneficial as it contributes to an upswing which can increase your chances of making a profit when the market becomes stronger. You can read more about investing in crypto here

Nonetheless, there are risks associated with both strategies. The key is to be well-acquainted with the historical trends and stay updated with the news. You will see countless bulls and bears for as long as you trade crypto. So, the best approach is to invest during both phases.

Buying in Bull & Bear Markets

If you buy in a bull market, you can sell at higher prices when the market hits its peak. As bull markets generally last long, it’s unlikely that you face any major losses. Buying at the end of bullish markets can also be profitable as prices tend to be lower at that time. 

It’s naturally riskier to invest in a bear market as prices are lower and investors don’t have much confidence in cryptocurrencies. However, buying in a bear market can mean the possibility of higher returns during bull runs. Most investors and traders prefer buying cryptocurrency when the prices are lower so they can sell them at the peak of the next bull. If a bear market is driven by recession, there’s no way to predict how long it will last. When the exact period of a dip or peak is not known, investors either miss out on a good investment or make a hasty purchase.

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