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Bear Market

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What is a bear market?

A bear market can be categorized into a phase or a mode in which the economic outlook is worn-out, disappointing, and gloomy, investors are always pessimistic, and stock prices are in free fall. It is a market condition a market condition or state in which there are liabilities and loans, there aren’t enough resources to pay them back, different companies’ stocks are declining in value, and investors lose their money.

If you’re not into markets and stocks, you must have wondered, at least once in your lifetime, why bizarre terms like ankle biter, cockroach theory, crown jewels, etc. exist in a space that is apparently a game of numbers. And if that was not enough, they’ve introduced animals to the jargon. 

Yes, for good or for worse, a downward-trending stock market is often associated with an animal – bear – and that’s just a simple fact. The opposite of a bear market is a bull market which has a sustained increase in prices. The bull market represents a rise in the companies’ shares and investors invest to try to earn as much as they can.

A market is not considered bear market unless it has fallen by 20% for over 2 months. The share prices in a bear market can go down continuously hence “bearish” is used to represent the market condition. 

In simpler terms, a rising market is bullish and a declining market is bearish.

Origin and history of the term 🐻

The origin of the term bear  is not exactly clear. However, we get two different views/explanations that provide some clarity on how the name prevailed.

The first view is that the term bear market has to do with a specific class of investors. Bears are investors who are almost always pessimistic about stock prices and the market and find it notoriously difficult to predict the future. 

Secondly, the term also has to do with how a bear functions, its movement, and more importantly, its attacking strategy. A bear – referring to a slow and declining market – attacks meticulously and ferociously using its claws, that are generally positioned downwards, which resembles how the stock prices go down.

On the other hand, a bull – referring to a buoyant, booming, and profitable market – has its horns positioned upward which shares similarities with a market that has higher shares and stock prices. 

A bear market in the crypto market is also referred to as a ‘crypto winter‘.

The people who are deep into crypto, and especially building things, a lot of them welcome a bear market. The winters are the time when a lot of those applications fall away, and you can see which projects are actually long-term sustainable, like both in their models and in their teams and their people.

Vitalik Buterin, Ethereum Founder

A bearish market in crypto – a timeline

The term bear market has been there in the centralized markets and stock exchanges for a long time now.

With the increasing popularity and acceptance of cryptocurrency and subsequent developments in the web3 space with respect to technology, market size, and user base, the term was adopted in decentralized systems as well. Crypto has seen multiple bear and bull markets since its inception in the late 2000s.

The overall sentiment about market conditions, in a bull market, in the crypto world is not much different than in a traditional market structure. 

In a broader sense, there is a significant decrease in trading volume; the investors withdraw from their holdings by selling them out of fear of the market plunging even further; fluctuation in prices is much more rapid and there is usually a decrease in the prices of stocks and shares. 

All the times the crypto market had been declared bearish

Year Market conditions
2013-2015Lasting for almost 410 days, this was the first major bear market which led to Bitcoin’s price hitting $177 from $1,242. 85% loss of value.
2017-2018With an all-time increase in Bitcoin price ($20,000), it lost 80% of its value dropping down to $3,200.
2019-2020After a short-lived but thriving bull run, Bitcoin again saw a bear market with the price falling to $3,800 from $13,800.
2021In mid-April, bitcoin lost half of its value from around $64,000 to $30,000.
2022In November and December, Bitcoin lost more than 60% of its value, resulting in a bear market.

Okay, but why is the crypto market condition measured using Bitcoin?

Excellent question! You must know that Bitcoin is the oldest and one of the strongest cryptocurrencies in the world today.

A well-known currency, it has historically been quite dominating in terms of market capitalization and overall market sentiment. 

As a result, when people talk about bear or bull markets, they use Bitcoin as a point of reference. This is also because many currencies are traded against Bitcoin and it being affected infers that the other currencies are also affected by the market conditions. Thus, if Bitcoin is bearish, crypto is bearish. If Bitcoin is bullish, crypto is bullish.

Lastly, because Bitcoin is so developed and has a first-mover advantage, it is thought of as the bellwether for the overall health of the cryptocurrency market. 

Characteristics of a bear market 📈

Following are the characteristics of a bear market in crypto:

1. Altcoins see a rise

Altcoins are alternate coins that grow in the market when it is bearish for cryptocurrencies. Some examples of altcoins can be Ripple, Litecoin, etc. Altcoins are like Bitcoin but with different characteristics. 

With a bear market, these may seem to rise but generally and usually they also go down because they are, most of the time, trading with Bitcoin, and a plunge for Bitcoin means a fall for altcoins as well.

2. Low trading

As prices decline, trading volume in the crypto market also reduces. This is because investors become more risk-averse and may avoid trading during periods of uncertainty.

3. High volatility 

Cryptocurrencies are known for their high volatility, and this is particularly true during a bear market. Prices can swing wildly, with significant drops and spikes occurring in short periods.

4. Everyone’s a Gloomy Gus

Investors are generally hopeless about the market. Bigger currencies and businesses are more into risk management and less into growth and expansion. There is generally a very negative sentiment around spending and trading. There is also a rise in short-selling. Fear of further decline and an increase in uncertainty engulfs the market as a whole.

Bull market versus bear market – the differences

These differences are not set in stone because crypto markets are affected by several other factors. Here’s a list of some commonplace differences that are there between the two types of markets.

AspectBear marketBull market
Price trendsPessimistic Optimistic
Overall market sentimentUsually downward or stagnantUsually upward or thriving
Trading volume Comparatively quite lowComparatively quite high
Investor behaviorNegative towards the marketPositive towards the market
Investment strategyMore emphasis on risk management and short-term goalsMore focused on expansion and opportunity with long-term goals

Is a bearish market good or bad?

A bear market can be as bearish as it wants but buying and selling can’t stop. Ever. If that happens, the market will neither be slow nor bull. It would be dead. The money keeps circulating and investments do happen but not as rigorously as they should. 

But you know how they say – never let the bad bring out the worst in you. Thus, here are some benefits of a bearish market: 

1. Money management is prioritized

In the bear market of 2022, currencies like Luna and FTX went bonkers due to market pressure and this was not expected at all. The bear market showed that the strategies need to be changed and that money management must lie at the core of all the strategies. I would like a little more on this – what strategies were brought in for money management, and what stuff was deprioritized?

2. Tokenomics matter

One of the positives of a bearish market is that it teaches you what coins to bet on. Companies and coins that you invest in need to be thoroughly and properly researched. There is no point in investing in a coin that has substandard or poor tokenomics

Tokenomics is affected by a coin’s business model in the long run. Thus, when looking into a coin’s insides and details, see how big of an investor-pleaser it is and whether it is focused on developers only. It is suggested that one must sought after crypto projects that pro-investor. 

3. Stay connected, stay positive

A bear market also shows you the importance of staying connected and positive. If you are a small-scale company that has invested hefty amounts of money in crypto, a bear market will definitely be a big shock for you. 

But with teamwork and team spirit and by staying positive throughout, you can come out stronger, bigger, and tougher. It is easier said than done but only the great ones of the small-scale businesses survive bear markets. 

Which one is better – buying in a bull market or a bear market?

Generally, investors are of the opinion that stocks must be bought in a bearish so that when the market turns bearish, they can make profit off of it. But investing in a bear market comes with risks of its own because you don’t know when it will end. It might go on for a long time and surviving that may not always make you tough.

Thus, it entirely depends on market conditions, your own insights and judgements and a pinch of good luck.

Aight, so how long does a bear market last?

The duration of a bear market in crypto can vary widely and is difficult to predict with certainty. Historically, bear markets in crypto have lasted anywhere from several months to over a year.

Final words

In conclusion, bear markets may be daunting and may lead to a lot of cash burn to get out of it but they’re a part and parcel of the cyclical nature of the market and the overall trends in it. 

Selling your assets during a bearish market may seem the most feasible option but at times it may be best to remain patient. This entirely depends on the factors involved in the market being bearish. 

But contrary to common belief, selling stocks is not something you should always be doing in such a condition.

Knowing about the basics of bear markets is essential when you are going to make crypto investment decisions. Such market conditions can have a huge influence on your investments and determine your profit and loss, so make wise decisions when investing in crypto.