A bear market is defined as a downward trend in market prices. As a cryptocurrency trader or investor, there are certain things to keep in mind before you begin your investment journey in order to avoid losses, and one of those things is the bear market.
Bear market describes a price behavior that indicates a bear market or expects to be a downtrend market. In this article, we will be looking at the crypto bear market, the types of bear markets in the crypto industry, how to know when the bear market, and how to predict the next bear market.
What Is Bear Market?
A bear market is a period in which the market experiences prolonged price declines. This is typically a case scenario that describes a condition in which securities prices have fallen below 20% from recent highs, and there is pessimism as well as negative sentiments among investors.
Bear markets are typically associated with market declines in general. Bear markets in the cryptocurrency industry can last a few hours, a few days, or, in more severe cases, months or even years.
This is due to the high volatility of the cryptocurrency industry.
Note: In traditional finance, the average length of a bear market is 289 days, but this is not always the case in the cryptocurrency market because prices are much more volatile.
Understanding The Bear Market
Bear markets are defined as a period of time where the supply of cryptocurrencies is greater than the demand for cryptocurrencies, which leads to low levels of confidence, which leads to prices falling. Pessimistic investors who believe the prices will continue to fall are called “bears.”
It is difficult to predict when the bear market might end and the bottom price has been reached. This is because rebounding is typically a slow and unpredictable process.
The crypto space is influenced by many external factors, ranging from the overall economy to investor psychology and any world events or news.
However, while these bear markets might be difficult to trade in, they can also represent excellent opportunities for traders who are prepared with a strategy.
If an investor’s strategy is tailored towards a long-term goal, buying during a bear market could pay off when the cycle reverses itself.
However, investors who have short-term strategies might also be on the lookout for any temporary spikes in value or corrections. Advanced traders will also utilize many other strategies throughout the bear market, ones that we will cover here.
If you are curious about the bull market vs. bear market, here is what you need to know;
The main difference between bull and bear markets is that bull markets are fueled by optimism, when the prices increase by 20%, while bear markets occur when prices fall 20% or more and are fueled by pessimism. That is how you indicate a bull market vs. bear market.
Types Of Bear Markets within The Crypto Industry
Within the cryptocurrency industry, numerous types of bear markets can occur. This is because cryptocurrencies have numerous use cases and are not just tied to the value of their tokens.
Bear Market for Bitcoin and other Altcoins – this is a bear market that occurs whenever the value of the Bitcoin (BTC) cryptocurrency token or any other alternative coin (Altcoin) that is not BTC falls in value by 20% or more.
Bear Market for Non-Fungible Tokens (NFTs) – a bear market NFT is a market when the value of a specific set of non-fungible tokens (NFTs) drops in value by 20% or more. This does not mean that the crypto market has a bearish turn but that the NFT sphere, specifically within the crypto industry, is experiencing a bearish turn.
Bear Market for DeFi projects – within the crypto industry, many decentralized applications (dApps) power the decentralized market. Most of these dApps that serve financial roles will typically have a total value locked (TVL) associated with them. When the value of these DeFi projects decreases by 20% or more, they are also experiencing a bear market.
Types of market trends
There are three patterns of price movement behavior :
- Uptrend: the higher price movement
- Downtrend: the lower price movement
- Sideways: the horizontal price movement
Causes Of Bear Market
The causes of a bear market can vary. However, in general, a weak or slowing economy or factors such as pandemics, war, or bursting market bubbles can play a huge role. Unexpectedly high inflation figures in the US triggered last week’s selling, The Financial Times reported.
CNBC reported in May that Wall Street is feeling the effects of a number of factors, including high inflation and associated rising interest rates, the war in Ukraine, and fears of a recession.
How Frequent Are Bear Markets?
Bear markets aren’t uncommon, explains CNBC, with the last occurring in US stock markets at the outbreak of the COVID-19 pandemic in early 2020.
Other notable examples of bear markets, according to Investopedia, include the dot-com bubble burst in 2000 and the Great Depression of the 1920s.
How To Know When the Bear Market Will End
To know when the Bear Market will end, you have to analyze the charts that follow the value of a token. Once a chart breaks above the downtrend, and the lows start climbing higher, while the highs start getting higher, the bear market is showing signs of finishing, and the market will reverse into a bull market due to this.
How To Predict The Next Bear Market
To predict the next bear market, you need to look at the current cryptocurrency prices; if you notice that prices are declining, this could be a sign of an oncoming bear market.
There are numerous charting tools available you can find that will showcase the value of any given cryptocurrency token, such as the Cup and Handle pattern and Fibonacci retracement.
The information will be presented through specific charts and lines that you can follow easily, which correspond to the value of the token in question.
Conclusion
While bear markets may be frightening to many cryptocurrency investors, particularly newcomers who chose to enter the market before it entered a bearish trend, they should not be cause for concern. There are numerous strategies available for crypto traders and investors to use in order to make the most of a bearish market.
