Ask Cryptovantage: What is Considered a Bear Market?

What is a Bear Market?

Opposite to the bull market, which is indicative of a market that is on the rise, a bear market indicates a receding economy. Most of the stocks go downhill in a bear market. In a bear market, many equities lose their value, and stock prices become volatile. A bear market also sees many investors withdrawing their money and sitting on cash, waiting for the trend to reverse. This withdrawal of funds often results in prices going even lower, creating a vicious spiral.

Traditionally it’s considered a bear market any time the market dips 20% or more from record highs for an extended period of time. More broadly a crypto market can basically be any period of negative returns.

Like the traditional stock market, the market of cryptocurrencies also has its share of ups and downs. However, the cryptocurrency market is more volatile than the equities market. It often becomes difficult to predict, therefore, when the crypto market will exit its bearish period.

Recent Bearish Trends in the Crypto Market

Bitcoin and Ethereum – these representative assets of the global crypto market, which account for more than 60% of the crypto market together, have experienced a drop of nearly 30 percent since May. Let us have a look at the recent price trends of Bitcoin.

On April 14th, 2021, Bitcoin registered its all-time high price of $64,863.10. Since then, the price fell significantly for a prolonged period. For instance, on July 17th, 2021, Bitcoin prices saw a reduction of more than 50% from their recent high and reached the mark of $31,533. However, it is on an upward trend now, with prices hovering around the mark of $50,000.

Ethereum, the crypto asset with the second largest market share, also witnessed similar price fluctuations. On May 12th, 2021, the price of Ether had attained its maximum of $4,362.35. After reaching their peak in the recent past, the prices started to fall abruptly. The fall continued up till July 20th, 2021. At this point, the price of Ethereum was witnessing a decline of more than 50%. It had reached $1,787.51. Much like Bitcoin, the prices of Ethereum have recovered since then and it’s currently hanging around the $4,000 mark.

Crypto Bear Market Dynamics

A crypto bear market takes shape from the churning of certain developments. If seen from the other end of the prism, we can also say that these characteristics are what define a bear market.

In a bear market, investors look for selling opportunities rather than opportunities to buy. Since the demand for buying goes significantly lower than usual, the share prices drop further. The market sentiment in a bear market is predominantly negative. Investors lack confidence and sit on idle funds, waiting for the market to show some positive signs. Investors choosing to drain out money results in a general price decline.

Although the bear market is an indicator of a weaker economy, certain strategies can help an investor to strengthen his/her digital assets portfolio.

Right Time to Buy

In a bear market, you can purchase high growth assets at a much lower price than usual. You can never be entirely sure of how long a bearish trend will last. Yet, with the right amount of patience and tenacity to wait, you can make good profits in the long run.

Experiment With Your Portfolio

When the prices are high, you might not include all the assets that you want to risk-optimize your portfolio. A bear market presents you with an opportunity to include as many assets as you had thought. The dip in prices exists for the majority of the players.

Conclusion

Overall, a bear market often acts as a boon in disguise if you are thinking long term.

When the prices are low, your focus should be on procuring assets that will be effective in the long run. We have already seen the price of Bitcoin increasing by as much as $15,000 between mid-July and mid-August. It presents investors with return potential that can hardly be matched by any other investing instrument.