You can draw many parallels between traditional investing and investing in cryptocurrency. Yes, they are similar in many ways, but the crypto market is younger and has benefits.
One of the best examples is the concept of bull and bear markets. Many beginners are wondering which one they should choose for buying cryptocurrency. Let’s discuss the fundamental difference between these trends, how they affect the state of the market, and what they are characterized by.
What are bull and bear markets?
Fluctuations are normal for the crypto market. But there are times when the value of cryptocurrency fluctuates very rapidly, and it continues for a long time. The generally accepted terms for these phenomena are bull and bear markets.
To learn how to profit from these trends, a trader needs to understand more about them and their differences.
A bull market is a market trend characterized by a period of growth and a favorable economic situation. During this period, investors trust the market more and buy more actively, which causes an increase in the value of digital assets.
Unlike traditional finance, the bull market in cryptocurrency has a more rapid rise in prices. A 40% increase is not unusual for the crypto market, and for some famous cryptocurrencies, it is possible to see an increase in the crypto price by 2-3 times.
As long as demand exceeds supply, the bullish trend continues. A higher level of market confidence and a positive cryptocurrency prices prediction leads crypto investors to continue investing more, leading to further price growth.
It is important to remember that periods of growth cannot be constant, and due to the crypto market volatility, not all traders can make significant profits. The bull market usually ends with a gradual transition to a bear market.
A bear market is a trend characterized by a drop in market and a constant decline in the price of most cryptocurrencies (by 20% or more), which leads to supply significantly exceeding demand.
Investors cannot be sure that the coin will return to its previous price and are afraid to buy it at a lower price. It contributes to the deepening of the downtrend.
The bear market is destroying the confidence investors gained during the bull market phase. Prices can fall due to negative news, which starts a spiral of panic, desire to sell assets, and reluctance to invest.
Again, trends are not permanent. A bear market can last a couple of weeks or even months. After it, the market goes into an uptrend and changes to bullish.
Is it possible to predict a bull or bear market trend?
The best way to predict a bullish or bearish market trend is to identify the patterns that affect them. In addition, the cryptocurrency market is strongly influenced by investors, whose actions affect the rate, so it is essential to pay attention to these fluctuations.
Cryptocurrencies are much more volatile than fiat money; therefore, events unfold faster than in traditional financial sectors. At the same time, for crypto to change the bullish or bearish trend, more things should affect it than traditional finance.
However, if a trend has already begun, it moves very rapidly and lasts up to a couple of months, unlike trends on traditional exchanges such as the New York Stock Exchange (NYSE), which can last for years.
If you intend to profit from the following market trend, you need to analyze past market trends (as well as market corrections) and be aware of changes, events, and news in the field of cryptocurrencies. Experts also identified several factors contributing to the emergence of bullish and bearish trends in the cryptocurrency market.
- news about some cryptocurrencies, causing fears about the appearance of the same information about others;
- interference in the development of the industry by governments and authorities;
- weak economy;
- decrease in trading due to market uncertainty;
- negative sentiment in the traditional finance market, etc.
- interest in cryptocurrency from public figures (comments, reviews, likes, tweets about any cryptocurrency). A typical example is the growth of Dogecoin as a result of Elon Musk’s tweet;
- news about investments in cryptocurrencies by famous personalities and large companies;
- events that affect traditional finance (war, pandemic, etc.)
- optimistic forecasts from experts.
Where preferably to buy cryptocurrency
No one can give a definite answer to this question. Buying cryptocurrency during both trends has its advantages and disadvantages.
A bearish trend has a clear advantage due to low prices. When buying a cryptocurrency at a lower price, you get a chance to earn when the bullish trend returns. However, no one can guarantee that all assets that lost their value will start to grow again.
By buying cryptocurrencies in the bullish phase, investors contribute to a further increase in the value of assets and can earn on it. Again, do not forget that prices can also fall due to the transition to the bear market.
Knowing the factors inherent in a bull or bear market is not enough to learn how to predict these periods in the market. To advance in this matter, a trader needs to monitor the events in the world, politics, and statements of public figures and learn how to identify patterns.
Studying previous bullish or bearish patterns in the market is also recommended. But remember that the cryptocurrency market is highly unpredictable, and it is almost impossible to know when a particular market will change.