Understanding Crypto Bull and Bear Markets

Cryptocurrencies are somewhat notorious for having volatile markets, with prices often swinging from high to low every day. However, there are certain instances in which crypto coins can either consistently appreciate or consistently depreciate in their value for an extended period of time. When one of these phenomena occurs, a trader will find themselves in either a bull market or a bear market. What they do with their coins during either of these extremes will have a significant impact on their investment.

What’s the difference between a bull market and a bear market? What accounts for the prolonged surges or dips in crypto prices? And how should you behave when either a bullish period or a bearish period is imminent? To answer these questions, here are some insights on how to navigate bull and bear markets for a cryptocurrency like Monero (XMR), which can be stored in an XMR wallet.

The Bull Market: An Uptick in Crypto Growth

The term “bull market,” named for the upward motion of a bull’s horns before it charges, is used to describe a market that’s experiencing a prolonged period of growth. When a bull market starts to establish its momentum, prices can increase by as much as 40% in only a couple of days.

What accounts for bullish crypto markets, and how do these periods of prosperity last for as long as they do? Some factors that account for bullish trends in crypto markets are the following:

Strong economic conditions in countries where the coin is traded
Favorable investor sentiments towards the coin
Positive word of mouth from traders with influence, such as tech magnates, celebrities, and sportspeople
Influxes of capital from big institutions, like tech firms
Support from trusted players in traditional finance

Bull markets can also be driven by impactful events in the finance sector. For example, since traditional financial securities were affected by the COVID-19 economic crisis, more people explored the potential of speculative assets like crypto coins.

A bull market for a crypto coin can continue for as long as the demand outweighs the supply, for as long as market confidence remains high, and for as long as powerful bull investors believe in the market. But no bull market lasts forever, and bullish trends are often followed by bearish downturns.

The Bear Market: Prolonged Downward Trends in Crypto Prices

The “bear market” takes its name from a bear’s attack style, which is the opposite of a bull’s—starting high, and then hitting downwards with the full force of its weight. It’s the perfect metaphor for falling crypto markets, whose sudden dips can result in devastating crashes. When prices fall by more than 20% from their previous high and then continue to move in a downward direction, traders will have entered the tricky environment of a bear market.

Factors that herald a bear market include the following:

Shaky economic conditions or political crises in countries where the coin is traded
Punitive attitudes from governments and major financial institutions when it comes to cryptocurrency regulation
Scandals like the coin’s involvement in major criminal activities
Rumors of forks or discontinuations of the blockchain involved
Skepticism among both investors and the general public

Bear markets are characterized by shrinking trading volumes, low liquidity, and excessive supply relative to demand. Due to their fear of losing more money as the downturn continues, traders often resort to extreme measures like panic selling all their assets. The wise trader must remember to keep a cool head and to assess the gravity of the situation before making any such trading decisions.

How Should You Trade in Both Bull and Bear Markets?

Bull and bear markets are inevitable for an asset like crypto. Someone who chooses to trade in crypto coins must prepare for periods of both feast and famine, so to speak. If you’ve got crypto coins in your portfolio, heed these tips for navigating through either extreme:

First, know the risks of entering into a speculative market like crypto. Only trade if you’re ready to deal with volatility in price movements and, just like with other investments, only pledge what you can afford to lose.
Stay on top of your emotions at all times. In both good times and bad, be careful about how you invest your cryptocurrency. Don’t make rash decisions based on hype or panic.
Track any fluctuations that happen in the crypto market you’re involved in. It’s a good idea to make day-to-day as well as week-to-week comparisons. This is how you’ll be able to read the signs that preclude either a bullish or a bearish market, like sudden price variations or announcements of support from an influential tech personality or celebrity.
In bullish markets, aim to sell high. In bearish markets, aim to sell low. The latter is often more difficult than the former, but a patient and perceptive trader may be able to earn a profit in both circumstances.

Greater awareness of how bullish and bearish markets work will give you the edge as a trader in either situation. When either occurs, keep your eyes peeled and your hands in firm control of your crypto assets.