Understanding Market Cycles: Bull & Bear Markets

Based on the market volatility over the past 6 months, it is essential to get familiar with the two types of market cycles and how to differentiate between them.  

Bull Market

A bull market is a condition where prices are expected to have a long-term upward trend. Initially, the term “bull market” is referred to in stock trading but can also be applied to crypto-currencies, commodities, bonds, and real estate.  
 
Since asset prices either go up or down, the term for “bull market” is used when there is an overall long-term upward trend in the market, where they can last for months or years. 
 
Bull markets involve investor confidence with long-term expectations of upward potential. Although trends and price potentials are present in a market, it is rather difficult to consistently keep up with the changing market trends. One of the strongest elements is through market sentiment “Fear & Greed”, which plays a role in shifting momentous in markets, especially the Crypto-currency market. 

Bear Market

A bear market cycle is referred to a downward trend in the asset prices of a market. It is widely used in both the Crypto and traditional finance space. Since Crypto-currencies are relatively a small market in comparison with traditional markets (Equities, Stocks, Bonds…), they are more volatile, therefore its not rare to see frequent Crypto bear markets with significant 50% drops in a price. 
 
But what is the driving force behind the current market correction that is happening? Bitcoin is currently trading below $35,000, a correction above 40% from Bitcoin’s ATH of 69,000$. And there’s a big correlation with Bitcoin’s price action and alt-coins, where the overall Crypto Market Cap is at $1.52T down from the peak of $2.8T!  Numerous factors affect Crypto-currency’s trading price and volatility, but such drops can be attributed to market sentiment and FUD (Fear, Uncertainty and Doubt). Concerns over-regulation in the markets were the main reason for FUD, the Russian Central bank proposed a ban on Crypto-currencies and exchanges, the UK Government announced legislation addressing Crypto asset adverts. A stronger correlation with the stock market since Nasdaq also experienced a sharp sell-off due to expectations of the US Central Bank’s decisions to their monetary policies and interest rate hikes.  
 
The most recent bear market in Crypto is not the first correction that the market has witnessed, it is a perfectly normal activity that poses a buying opportunity for both new and current investors as well as being the driving force of a new healthy bull market. 

Bulls VS. Bears

Bull markets fueled by rising asset prices creates positive sentiment in the market with more confident traders, where the traders are more comfortable in investing which further drives price increases. Because of positive sentiment and investor confidence, bull markets usually last longer than bear markets which tend to have less enthusiasm for trading. 
 
There are correlations between market cycles and economic cycles that consist of four phases: expansion, peak, contraction, and trough.  
When a bull market starts, it’s referred to as an indicator for economic growth. On the other hand, bear markets tend to set an economic contraction. These cycles occur due to Global Economic factors like GDP, interest rates, and money supply. Bull and bear markets in traditional financial markets are highly correlated with the Crypto-currency market due to Crypto-currency’s risk asset classification. 
 
In contrast, Crypto-currencies drive investor sentiment from factors aside from economic indicators. Use cases and underlying commercial value of the technology that a Crypto-currency asset provides are among the factors that investors consider when trading Crypto-currency. Although Crypto-currencies are more volatile than traditional markets, they still go through bull and bear market cycles like other asset classes.  
 
Overall, both market cycles are necessary for asset valuation and market development to be healthy. They enable investors to profit from economic expansion while also preventing asset prices from becoming too overvalued or undervalued. 
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