Crypto is a relatively new asset class and has only been in existence for a decade and a half. As such crypto stocks are highly volatile and attract lesser investors as compared to traditional markets.
That being said, much like the traditional market, crypto too has bull and bear cycles. And just like it is next to impossible to perfectly time the traditional market, the same is the case with the crypto market as well. Before we discuss the key identifiers of the crypto bull and bear markets, let’s understand what bull and bear markets are.
Bull and Bear market
Crypto might be a new asset class, but it still is an asset class. Hence, many definitions we use in traditional market-speak can also be applied to the crypto market, and this includes bear and bull markets. When the market is on a rise and keeps this rising trajectory for a sustained period, this phenomenon is called the bull market, and this rising trend is called an uptrend.
During a bull market, investor sentiment is positive and thus investors buy more securities in anticipation of making a profit from the rising market prices. A bull market indicates that the economy of a country is healthy and the employment rate is high.
Because of a healthy economy and high employment rate, people generally have more money and their basic necessities are being met easily. Thus they spend money on things that make their quality of life better and this positive investor sentiment is reflected in a bull market.
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A bear market is the complete opposite of a bull market. This type of market reflects a decline in investor confidence as the stock prices generally are going on a downward trajectory. Thus investors take their money out of the market and invest it in safer instruments such as government-backed bonds.
A bear market indicated the dwindling economic condition of a country where the unemployment rate is increasing and people have less money to spend. They thus spend their money more carefully considering their basic needs first as they can’t afford luxuries at the moment.
Both bull and bear markets are indicators of public sentiments, and for an investor reading the pulse of this sentiment is very important. In an ideal bull market scenario, an investor will buy securities just as the price starts rising and the market starts showing an upward trend. He will sell these securities when the market is at its highest peak.
In an ideal bear market scenario, an investor will sell his securities at the first glimpse of the market showing a downward trajectory so he can get the maximum value out of his securities. He will then buy stocks when the market is at its lowest point and shows the signs of getting up.
But even in a consistent bull market, there are days when the market prices fluctuate and go down and vice versa in a bear market where prices fluctuate and go up. Thus it is almost impossible to time a bull and a bear market perfectly.
Although the crypto market is already very volatile and prices go up and down many times in a single day as well, these bull and bear definitions hold true to the crypto environment as well.
Key Indicators of a crypto bull market
- In a crypto bull market, cryptocurrencies and other digital assets will show a healthy and consistent increase in price over a sustained period of time. This period can be anything from 2 months to a year or even more.
- During a crypto bull market, you will see the demand for digital assets such as cryptocurrencies rising over a period of time and the supply becoming limited. This positive demand drives the price of digital assets even higher.
- As the price keeps increasing and the demand shows no sign of slowing down this shows that the investor confidence in digital assets is strong and they are expecting the price to rise even further.
- Another key indicator of the crypto bull market is the overpricing of certain digital assets. Because of the positive sentiment among the investors, many digital assets get valued over and above their actual value.
- Another key indicator of a crypto bull market is the reaction of the market to the good and the bad news. Any good news during this time will show a big spike in the price of digital assets whereas bad news will show a very small decline in the price of these assets.
Key indicators of a crypto bear market
- A crypto bear market is accompanied by a decrease in the price of digital assets such as cryptocurrencies for a sustained period of time. This period can be anywhere from 2 months to a year or even more.
- During a crypto bear market, you will find digital assets such as cryptocurrencies readily available to be bought at reduced prices. The supply in the market is greater than the demand during this time.
- You will see investors pulling their money out of the crypto market during the crypto bear market. This is because the investor confidence in the digital assets is low and they are expecting to incur losses.
- You will see a lot of digital assets getting undervalued at this point in time. Even though the intrinsic value of these assets might be high, because of investor sentiment, even the blue-chip crypto-assets can be bought for a cheap price during this time.
- The impact of good and bad news is also a key indicator of the crypto bear market. Any good news during this time will not affect the value of crypto assets. If it does, there will be a very weak positive uptrend. Bad news on the other hand will plummet the value of crypto assets steeply.
Navigating the bull and the bear markets
Crypto is only just becoming an asset class worth investing in for a general investor. This is because most investors are now understanding what crypto is and how they can make use of digital assets in their investment portfolios.
There haven’t been very many crypto winters and the market has generally seen only crypto bull runs. That being said, if you navigate the crypto market like you would do the traditional market, keeping your research up to date and not panicking with day-to-day market volatility, you can be positive. Play the long game and be patient, that’s the key to navigating the crypto space.
Just be sure that you don’t get carried away by steep price rises. Only invest as much as you are willing to lose. The highly volatile nature of the crypto market can feel like a roller coaster at times, but this space is still growing and nobody knows exactly what curveball the market will throw next.
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