What is a bull or bear market?

If you’re new to investing, you may have seen the terms bull vs bear market used when referring to market conditions. These terms describe whether stock market values are rising or falling.

Investors started using the terms bull and bear back in the 1700s, with the inspiration coming from actual bulls and bears. Both bulls and bears can be devastating when they attack.

Another theory is that a charging bull symbolises confidence in the market and a hibernating bear represents a crashing, or sleeping, market. As such, a bull market occurs when prices for financial assets rise for a sustained period, while a bear market happens when they drop.

Bull and bear markets extend to the crypto world, so it’s important for crypto investors to understand what these markets are, when they are occurring.

What is a bull market?

Definition of a bull market

A bull market is broadly defined as when prices are rising. The commonly accepted threshold for the start of a bull market is at least a 20% rise in stock prices. During bull markets, investor confidence is soaring, and demand is increasing.

The 1990s dot com bubble was a major stock market bull run. In crypto, Bitcoin's 2017 and 2021 bull runs resulted in huge price surges.

Characteristics of a bull market

A bull market is characterised by sustained price increases which often lead investors to have increased market optimism in the uptrend continuing.

During a bull market, the country’s economy is typically strong, GDP is expanding, employment levels are high, and trading volume is increasing.

Market euphoria, when investors’ emotions and biases factor into buying or holding stocks, tends to occur near the top of an investment cycle.

What is a bear market?

Definition of a bear market

A bear market refers to when prices fall by at least 20% from recent highs. Bear markets are characterised by declining prices and market pessimism. The 2008 financial crisis was a bear market, and the 2018 Bitcoin crash and 2022's FTX collapse are also examples of recent bear markets.

During a bear market prices are continuously declining. As a result, fear overcomes investor confidence and often triggers sell-offs to liquidate assets.

Characteristics of a bear market

Bear markets can last from a few weeks to several years and often occur during periods of economic downturn and higher unemployment.

During a bear market, economic stagnation and declining prices can lead to low investor confidence. Investors want to sell instead of buy, which reduces trading volume and increases market volatility.

Bull vs. bear market: key differences

Price movements

The direction of stock prices marks whether it is a bull or a bear market condition. In a bull market, demand is high, and supply is weak. Investors want to purchase financial assets but very few holders are willing to sell them. Share prices rise because of investors competing for the available assets.

The exact opposite is true for a bear market: more people are looking to sell assets than buy them. In this scenario, share prices drop because demand is far lower than available supply.

Investor sentiment

Investors are usually happy, excited, and overconfident during a bull market. During a bear market, investors can be uncertain, panicky, and anxious as the decline in stock market prices rattles investor confidence.

The market’s behaviour is heavily driven by how investors react to its behaviour. Whether the market will rise, or fall is mutually dependent on market performance and investor psychology.

Trading volume and volatility

In bull markets, increased buying and selling activity makes trading volumes rise. In bear markets, trading volumes may decrease as investor interest declines due to fear of losses.

The often-sharp price drops make volatility higher during bear markets, while bull markets tend to experience more stable upward price movements. Bull markets will also have occasional spikes.

The impact of bull and bear markets on cryptocurrencies

How bull markets affect crypto prices

Cryptocurrency’s demand is strong in bull markets and can lead to parabolic price surges like the 2017 Bitcoin spike.

When Bitcoin and Ethereum ris,e altcoins also gain traction, seeing significant price surges during bull runs.

How bear markets affect crypto prices

People are more inclined to sell their crypto assets in a bear market due to price crashes and lowered investor sentiment. However, traders tend to buy during bearish markets for the lower cryptocurrency prices.

How to stay informed during bull and bear markets

The best way to prepare for a bull or bear market is to stay updated on market news and trends. BTC Markets is the trusted Australian platform for real-time trading, market analysis, and a user-friendly interface.

Bull and bear markets with BTC Markets

Bull vs. bear markets both describe how markets are performing, but they are entirely separate market phenomena that require different investment strategies.

The main determinant in whether it is a bull or bear market is how the market performs over the long term. Minor price changes reflect short-term trends or market corrections rather than significant long-term shifts.

Sign up to BTC Markets today.