Are we in a bull or bear market? & How to identify the bullish and the bearish market?

The words “bull market” and “bear market” are frequently used to describe market situations in the investment sector. You’ll commonly find markets defined by one of these two phrases whether looking at cryptocurrencies, stocks, real estate, or any other asset.

Bear markets are generally connected with crises, simply because markets have been down for extended periods of time.

While the bull market or the bullish, it has the decision to buy and sell, particularly for investors, and it is in a time that frequently observes an upward trend.

In general, a bull market is one that is increasing, while a bear market is one that is decreasing.

What is a bear market?

This is one of the present global situations, but before we can grasp its reasons, we need to know what a bear market is.

Experts claim that the occurrence of a 20% decline in the price of stocks, cryptocurrencies, or markets overall from their most recent highs indicates the onset of a bear market.

A specific stock that has declined 20% or more from recent highs is referred to as a bear market.

If a specific company reports that the price of its stock has decreased by 30%, we can say that a bear market has begun.

The term “bear” or “bearish market” refers to a period of fall rather than a definite bottom location. As the selling process starts in a frenzy, more losses are sustained, which furthers the market slide, this time of decline can linger for months or even years. Bear markets may see rallies, but they are not long-lasting.

The bear market in cryptocurrencies frequently lasts for a period of up to two years and is brought on by investors’ unwillingness to trade or spend additional money to acquire digital currencies. As a consequence, markets start to decrease, leading to more selling and less purchasing.

Pessimistic investors known as “bears”; believe that prices will continue to drop.

Even for experienced traders, the bear market can be challenging, but if you have a long-term investing strategy, purchasing during the bear market can be profitable since there will inevitably be another bull market in the future.

Investors are usually losing money during a bear market, but thankfully, this is a temporary situation.

Instead, we want you to keep trying. No matter how much time passes, the cycle must begin.

The recovery is often a gradual and erratic process since it may be influenced by numerous external variables, such as economic development, news, and global events. It is impossible to determine when the bear market will end.

bear market-causing factors

Although the causes of the bear market can vary, these are typically the most common:

1. Too little demand but too much supply.

2. Weak speculation is caused by low investor confidence and their fear of a market collapse due to political or economic factors.

3. A slowdown or weak economy.

4. The epidemic of COVID-19 worldwide; outbreaks.

5. Wars.

6. Political unrest and conflicts, such as the conflict between Russia and Ukraine, which sparked a world oil crisis and led to high inflation, a spike in interest rates, and a worldwide recession.

What is a Bull Market?

Bull markets are described as markets that continue to trend upward. During this period, which is also known as huge earnings, investors may profit at any entry point because prices are often rising.

The official definition of a bullish market is when stock prices have increased broadly by at least 20% from the previous market drop.

A bull Market is a market that exhibits the biggest extensions during uptrends and the highest retracements during market corrections. Typically, benchmark indexes like the S&P 500 and the Nasdaq are used to identify bull markets.

Bullish market conditions can extend for a longer period of time; in general, bullish situations might stay so long that investors start to assume that prices will keep rising, which has an impact on stock prices.

For instance, the US stock market remained optimistic following its recovery from the 2008 economic recession until the market crashed in 2020 as a result of the uncertainty brought on by the pandemic, but the bull market nevertheless lasted for more than a decade.

Since the market shifts to a negative trend after a while and can lose up to 100% of the invested capital, especially in Bitcoin and other cryptocurrencies, the bull market time is frequently not ideal for investing.

In 2021, digital currencies reached their highest peak during the Bull Market, propelling cryptocurrencies to unusual heights. we enter the year 2022, which saw the worst decline of Bitcoin and Ethereum by 70%, from a high of 68,000 dollars to 17,000 dollars for Bitcoin, and it could fall even further.

Why is it called bull market and bear market? The history of ‘Bull’ and ‘Bear’ Markets

Both beasts are recognized for their sudden and unexpected power, thus the image they both paint of market volatility appears to be accurate.

By the 18th century, intermediaries selling bear skins were selling hides they had not yet gotten, and a proverb developed advising that “selling the bear’s skin before catching the bear” was foolish.

The intermediaries were taking this step in the expectation that the purchase price would be low in the future, allowing them to profit from the gap between the cost price and the selling price. These brokers were eventually dubbed “bears,” short for bearskin users, and the moniker has stayed to define the market’s decline until today.

Initially, the name bearskin referred primarily to the purchasing and selling of bearskin, but it was soon abbreviated to Bear, which was given to speculators selling stocks.

The name “bull” then emerged, initially referring to the purchasing of products with the prospect of greater prices.

A bull is a stock market trader who buys assets or speculates the expectation of high future stock values.

The polar opposite of a bull is a bear, who sells assets while anticipating a decline in price. We say a bear sold borrowed stock with a future delivery date with the intention of repurchasing the shares at a lower price and retaining the difference as a dividend.

It’s also thought that the words “bear” and “bull” came from how each animal attacked its foes.

Markets often follow one of two trends: either prices are rising (growing) or they are falling (down).

Consider the bull market to be the bull raising its horns in the air, while the bear’s claws slip down, culminating in a bear market.

So, if the trend is upward, it is a bull market; if the tendency is downward, it is a bear market.

How do bull markets and bear markets differ? identify the bullish and the bearish market

A bull market is the opposite of a bear market; we will try to explain the difference between the two in brief:

psychology of investors

During a bull market, investors join gladly in the expectation of profiting, however, during a bear market, market sentiment is negative as investors begin to shift their money from equities to fixed-income assets.

In summary, whether the market rises or falls is influenced by an investor’s psyche and feelings.

Volatility in the stock market

Stock prices grow in the bull market despite occasional short-term market corrections, whereas they decrease in the bear market.

GDP (gross domestic product)

Bear markets happen when GDP falls by 10% or more, company sales fall, and the economy deteriorates and may enter a recession, whereas bull markets occur when GDP rises and corporations increase revenue and purchasing power with it.

Rate of unemployment

A lot of job chances arise as a result of companies’ growth and higher financial market competitiveness during a bull market, whereas a rising unemployment rate tends to extend a bear market since fewer people are getting paid.

Market shifts

Merely long-term movements may be used to predict whether a market will be bullish or bearish because small moves only reflect a short-term trend or correction.

Interest rate and inflation rate

The bull market’s high demand for goods and services may cause price increases, resulting in inflation and hence high-interest interest rates, although the bull market is frequently accompanied by low-interest rates.

During a bear market, inflation hinders companies’ expansion, reducing demand, and this circumstance can lead to deflation.

What can I do in each market?

The ideal investment philosophy is to buy low and sell high, which means to purchase in a bear market and sell in a bull market. However, you are probably to suffer a loss before recovering.

During a bull market, the best thing an investor can do to maximize returns is to take advantage of rising prices, how is that? Simply buy the stock early in the trend and sell it when it hits its peak.

The proportion of losses is higher in a bear market since prices are continually losing value, and even if you opt to buy in the expectation of a comeback, you are likely to lose money. As a result, many investors take advantage of decreased prices by selling short, purchasing exchange-traded funds (ETFs), or purchasing put options. Fixed income instruments are regarded to be one of the safest investments during a bad market.

Tip: When you decide to buy in a bearish market, you must realize if you are holding a bubble or a bag full of assets, which means you should always look primarily at solid firms when purchasing stock in a bearish market, otherwise you may end up with.

What is a bearish market in cryptocurrencies?

The bitcoin and Ethereum currencies are leading the cryptocurrency market, which means that any rise or fall that occurs in these two currencies, especially bitcoin, helps dragged other currencies with it.

This is because when cryptocurrencies are at their peak in a bullish market, liquidity declines and sales rise to take profits, then the stage of decline and bear market begins, and this situation continues; A big drop and then a weak rise until it re-establishes the previous level.

With the appearance of any encouraging sign, Bitcoin starts to rise and drags the rest of the other digital currencies along with it. Eventually, it reaches the peak or Bull Market once more, albeit this is frequently just temporary and the cycle then starts to fall once more.

How do markets transition between bull and bear markets?

A period known as an asset bubble develops when investors have irrational overconfidence during a bullish market and prices do not decline over time. Investors start bidding above the true underlying worth, which results in an overestimation of the value of the investments.

Prices grow until the supply of assets rejects any price increase, at which point the bubble bursts and prices begin to decrease, ushering in the bearish market phase.

Bearish and bullish market examples

Due to inflation, weak economic development, and political uncertainty during this time period, a bearish market emerged in 1973. The bear market continued until 1982 when stocks began to climb once more.

At the end of 1982, the most productive bull market in modern American history began. The Dow Jones Industrial Average‘s yearly gains averaged 15% during this multi-year bull market, which ended with the dot-com crisis in 2000.

A new period has begun. From 2000 to 2009, the market failed to gain traction, with average yearly returns of 1.16%. Then, in 2009, a bullish wave that lasted more than 10 years began, and the growth in technology stocks was one of the most important contributing elements.

The economic slowdown in 2020, caused by shutdowns associated with the Covid-19 pandemic, was the shortest bearish market in history. Stock prices decreased for only two months over this time period before returning to increase.

How long can bull market and bear market last?

We can determine the typical duration of the bull market and the bear market by looking back in time.

The bullish market typically lasts for nine months on average, with expected revenue of 112%.

As for the bear market, in case we prohibit the longest and most brief bearish markets for the years 2000 and 2020, the standard length of the bearish market is almost one year.

Corrections vs Bear Markets vs Crashes

The correction and crash should not be confused with the bear market.

Bear market

A bear market is one in which the markets have declined by at least 20% from their recent peak.

Correction

Technically, the correction process is not considered until the markets have declined by 10% from their highest levels for at least 60 days.

The correction process is the fall of the stock index, bonds, commodities, or the market in general. It signifies the halting of the uptrend and the decline in prices.

Crash

A crash is a situation that denotes a very significant and abrupt decline in the market’s value over a brief period of time. There is frequently no set proportion.

The cycle of the bear market and the bull market in stocks and crypto (Psychology Of Market Cycles)

The diagram below divides the market cycle into ten stages and shows how long each stage takes.

Psychology of a Market Cycle by apsnt on TradingView.com

Hope

Following the bear market period, the first signs of recovery arise. The market is indicating that there may be an upside.

Optimism

The market has a bright future, and thanks to the injection of additional cash, the rally will last for several months.

Belief

This is one of the earliest signs of a bull market. When feeling secure, investors seek fresh market prospects. It is also known as the new investor entrance.

Thrill

This stage is characterized by enthusiasm, since investors in general, and traders, in particular, are hunting for fresh ideas, even if they do not have adequate information.

Euphoria

Large projects always come to an end as a result of the predominant human emotions. Because the upward trend always places someone who has no prior knowledge in this field as the first to jump.

Complacency

As expectations are not satisfied, the bull market is slowing and the first indications of a bearish market are emerging.

Despite this, it is a deceptive stage since many believe that this is simply a little break before the upward trend continues.

Anxiety

People understand that this bullish race cannot go on indefinitely as they observe the market inverting and losing value, which makes them more fearful of losing.

Denial

Since investment values are still declining, many investors choose not to sell in the hopes of a correction, but doing so just makes losses worse in the long run.

Panic

This stage reflects a large sale that is going place in the market. the bearish market becoming a reality.

Depression

Market circumstances, which are at their lowest point in the cycle, cause people to lose hope.

Because this is the point where stability and consolidation start up again, this stage might last for a very long period.

Are we in a bearish market?

Currently, we hear daily the following phrases: There are several things happening right now, like unemployment, excessive inflation, and interest rate rises.

The S&P 500 entered the bear market zone on June 13, 2022, and has been unable to exit since then. This year, the S&P 500 is down approximately 20% from its peak in January 2022.

However, there is a concept in financial circles called recency bias, which states that we value contemporary events more since they are more visible in our brains.

There are many gloomy expectations, as well as a sense of fear and dread, and investors suffer as a result. But the question is, will this condition continue?

The simple answer is no. Historically, we may say that the terrible times last roughly a year on average.

But, if you ask, what are the signs that this bear market will not last?

Simply said, the S&P 500 and Nasdaq Composite had their best months since November 2020. The S&P 500 has gained roughly 9%, while the Nasdaq has gained 12%.

In this case, there are two possible outcomes: Either it’s a bearish market rally that gives the market a brief respite before it lowers again, or it may already be at a bottom, and we are beginning a new journey.

What is clear, though, is that the market is doing well right now.

Therefore, the markets are expected to respond favorably when the inflation statistics start to decrease, just as we have seen them do when the interest rate rise was announced.

Vitalik Buterin Predicts The End Of The Cryptocurrency Bull Market

 

In a recent interview with Noah Smith, Vitalik Buterin, the creator of “Ethereum,” said that he was well aware that the crypto bull market was coming to an end and that this bubble would eventually bust. A lot of individuals believed that expensive pricing was the new standard, he also noted.

He gave the example of Initiative Terra, a once-popular blockchain project, as an unsustainable business model that can only prosper during a bull market.

Buterin also stated that cryptocurrencies are unlikely to vanish in the next 20 years and that Bitcoin’s price volatility would decrease dramatically in the long run. So it remains to be seen if the cryptocurrency business can attain mainstream legitimacy or not.