Bear Market and Bull Market: Market Stages and their Impact on the Crypto Universe

After a prosperous growth period, cryptocurrencies have had the opportunity to gain greater space in the world of finance. Despite being considered a volatile asset, the number of investors has grown considerably in the period from 2020 to 2022.

However, the last few months have not been easy, with what is called by investors a “Bear Market”, digital assets continue to fall over the months. As the most traded currency in the crypto universe, Bitcoin remains a market reference, but a significant devaluation of digital assets in general is observed, as is the case with Ethereum and Cardano.

Below we will better understand these oscillations, their terms, and possible strategies for moments of crisis.

Bear Market x Bull Market

According to the S&P 500 (financial index that lists the most significant stocks quoted by value on US exchanges), in the last month, US stocks have reached their lowest index since 2021, and it can be said that the financial market is in a “Bear Market” phase. But what does that mean?

“Bear Market” is characterized by a market in which securities or commodities are in a considerable low period. For reference, the Securities and Exchange Control Commission* considers it a bear market when there is a 20% drop in the value of its securities for a minimum period of 2 months. The term “Bear Market” derives from an analogy to the way the animal attacks, from top to bottom.

In the opposite direction, when a market is up, that is, without falling more than 20% from its peak in the last 52 weeks with its shares valued, the heated economy and high employment rates, it is called a “Bull Market”. Symbol of the robust bull of Wall Street, the metaphor is based on the way the bull attacks: from the bottom up. 

What leads to Bear and Bull Market 

There are many aspects that motivate the Bear Market, such as a slowdown in the economy, bursting bubbles, pandemics, wars, or the commodity cycle. But a much more subtle factor that can influence the market’s decline is psychological. The pessimism of investors in the face of uncertainty. 

With a Bear Market, investors tend to sell more of their stocks, pushing prices even lower, and fueling this negative cycle. This is what happens with cryptocurrencies, when the market enters Bear Market, investors withdraw their investments from digital currencies that at this moment are considered a risky investment. But the opposite also happens. When a market is in its prosperous phase, purchasing power increases, and people tend to consume more, warming up the economy. 

Other factors that strengthen the Bull Market are interest rates, since rising ones attract foreign investors who help control excess liquidity in the economy and tend to invest in riskier assets such as cryptos and GDP (Gross Domestic Product) growth, leading to higher industrial production, higher sales and turnover. 

Crypto Market in Times of Bear Market

Still under the effect of a post-pandemic and aggravated by Russia’s war with high interest rates and inflation, the market is experiencing a “Bear Market” period. All investment-driven businesses are affected by these swings and with cryptocurrencies it is no different. As it is considered a volatile asset, cryptos are quickly affected by this phase, since when they realize that the market is entering a bearish period, investors seek to direct their capital to safer businesses, such as fixed income. But what are the experts’ suggestions for crypto investors to survive this crisis?

The watchword is patience, as analyzing the previous market cycles, Bitcoin has always managed to recover from the lows. Currently, it is important to have a long-term perspective, especially for those who have no experience of previous negotiations. It is also essential not to create expectations of market recovery, as this is unpredictable, and it is always possible to have a new low. 

For those looking for long-term investments, a Bear Market is no reason to panic. According to the analysis in “Stock Market Briefing: S&P 500 Bull & Bear Market Tables” released in June of this year, it is estimated that there have been 28 Bear Markets since 1928 with an average duration of 289 days each, while in this same period we have had 26 Bull Market cycles (when the market is up with its assets increasing) but with much longer durations, prevailing by more than 20% over Bear Markets. This means that the crises pass and the market heats up again.

Another factor observed is that a Bear Market is an opportunity for new investments due to falling prices. It may be time to increase your cryptocurrency wallet or Cryptoart collection. Established collections by great names such as Doodles and Bored Ape Yacht Club have had some works traded on the OpenSea marketplace in recent weeks with significant discounts. 

Another important piece of advice from experts is not to bet all your assets on a single type of investment, always try to diversify. And remember, the market has always lived its cycles of ups and downs. This is an issue that all investors must live with.

*Securities and Exchange Commission (United States Securities and Exchange Commission U.S.) is an independent federal agency for the regulation and control of financial markets.

Article and Research | Roberta Rodrigues 
Translation | Carol Martins

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