Bull vs Bear Market: What’s the difference?

Whether you're investing in cryptocurrency, stocks, real estate or any other asset, you’ll often see financial markets described in one of two ways: as a bull market or a bear market. In their simplest form, a bull market is when market conditions are rising, while a bear market is when conditions are declining. But what exactly do they mean, why are they called this and what’s with all the animal names? Read on for more answers.

What is a Bull Market?

A bull market, or bull run, is defined as a period of time where the majority of investors are buying, market confidence is high and asset prices are rising. Investors who believe that prices will continue trading higher over time are said to be “bullish” and are known as “bulls”. As bullish investor sentiment rises, a positive feedback loop emerges, which grabs attention and draws in more investment, propelling the forward momentum to continue. 

Signs of a Bull Market

A crypto bull market can be identified by a number of different characteristics:

• Sustained rising asset prices
• Demand for assets outweighs supply
• High levels of investor confidence and optimism
• Flocks of new investors enter the market
• Negative news has little impact on asset prices

What causes a Bull Market? 

Bull markets are driven by investor optimism in the price of an asset or asset class, which will earn them a profit. Many different factors, both internal and external, can spark bullish price action. Driving forces behind a bull market can be favorable macroeconomic conditions like growth in the economy, high employment levels or low interest rates.

As a nascent asset class, crypto bull markets can also be incredibly nuanced and event driven. For instance, the Bitcoin halving has traditionally marked the start of Bitcoin bull runs. New product and project innovations have also been shown to kick off crypto bull runs, like during the DeFi summer of 2020. Similarly, when shows of confidence appear from the traditional finance world, like Goldman Sachs repeated $100,000 Bitcoin price prediction, this can put upward pressure on digital asset prices. 

What marks the end of a bull market? 

They say that good things don’t last forever, and crypto bull markets are no different. History has shown that at some point, investor confidence will begin to decline. This could be triggered by anything from bad news, unfavourable legislation or unforeseen world events. Overly inflated asset valuations can also flip investor sentiment, forcing the “bubble” to pop, causing a sharp downward price movement.  

What is a Bear Market?

A Bear Market is defined as a period of time where the majority of investors are selling, investor sentiment is negative and most asset prices are trending lower. Pessimistic investors who believe prices will continue to drop are said to be “bearish” and are referred to as “bears”. Prices can plummet as demand slips and investors hibernate for the downturn.  

Signs of a Bear Market

In a crypto bear market, you’ll likely see one or more of the following:

• Prices trend down over a sustained period of time
• Supply is greater than demand
• Low investor confidence and pessimism
• Investors flee the market
• Bad news sends prices spiraling downwards

What causes a Bear Market?

If optimism is the currency of a bull market, then fear is the fuel of a bear market. Bear markets can be triggered by a number of things from a negative macroeconomic environment, to global wars and government crypto bans. Because crypto markets are both highly reflexive and retail investor heavy, once fear and uncertainty begin to creep into the market, negative sentiment can snowball quickly with cascading effects sending prices significantly lower. 

What marks the end of a Bear market?

Identifying the end of a bear market and when the bottom price has been reached is notoriously difficult, as it's influenced by many external factors such as macroeconomic conditions, investor psychology, and world news or events. Bear markets generally subside when negative sentiment pushes asset prices well below their fair or fundamental value. Eventually, value investors step in, and a bull regime may return. 

Origins of the terms

Like a lot of financial phrases, the origins of the terms “Bull Market” and “Bear” Market" aren't clear. But most people believe they come from the way each animal attacks. For example, a bull thrusts its horns in an upwards motion as it charges, while a bear swipes its paws downwards when striking. This may be why these terms are associated with patterns of upward and downward price trajectory respectively.

Bull vs Bear Market - Investment Considerations

Just as the joys of summer are always followed by the colds of winter, and vice versa, financial markets and crypto markets in particular have been shown to be cyclical in nature. While bull or bear markets can trend for prolonged periods of time, they will eventually end. As a crypto investor, you may experience a number of bull or bear markets, so it’s important to understand how market cycles and market sentiment work. Learning to recognise the characteristics of each regime early and positioning your portfolio accordingly can help ease the pain when the bears awake from their hibernation slumber, or make profits when the bulls eventually charge.  

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