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Bear vs. Bull Market: When is the best time to invest in crypto?

Updated: Jun 30, 2022

Like the stock market, cryptocurrency markets can be described as either a bear or a bull market. To put it simply, a bull market is a rising market, where asset prices increase and investors are optimistic. In contrast, a bear market is a declining market, where asset prices fall, and investor sentiments are gloomy.

As an investor, it’s crucial to understand these market cycles. A firm grasp of bears and bulls let you take advantage of market conditions, whether they’re on a climb or a dip.

What is a Bull Market?

A bull market is characterized by long, sustained increases in market prices or a quick but substantial (around 20%) upward swing. It got its name from the mighty bull, who attacks with upward motions of its horns.

In a bull market:

  • Investors are optimistic. Market confidence is high. Confident investors, known as bulls, eagerly buy assets.

  • Demand is greater supply. As demand exceeds supply, prices rise steadily.

  • A feedback loop. And as crypto prices rise, the market inspires even greater confidence and draws even more investment. More people buy, demand rises even more, and so do prices.

Historical data shows, however, that bull runs do not last forever. Somewhere along the way, the trend reverses, and the market may enter a bear cycle.

What is a Bear Market?

In contrast, a bear market is characterized by a long, sustained decrease in market prices, or a quick but substantial (about 20%) downward swing. It got its name from the bear, which attacks with downward strikes of its claws.

In a bear market:

  • Investors are pessimistic. Market confidence is low. Pessimistic investors start to sell their crypto assets.

  • Supply is greater than demand. As supply exceeds demand, prices steadily fall.

  • A feedback loop. As prices fall, more investors lose trust in the market and sell even more assets, which push the prices down. This loop causes a long, downward trend.

A lot of factors may trigger a bear market. Political instability, conflicts, and slow economies could dampen investors’ spirits, pressing them to let go of their assets. But take note that, like bullish markets, a bearish market doesn’t last forever.

Moreover, despite huge dips in prices, bear markets present a great opportunity; you just need the right strategy.

How to take advantage of a bear or bull market

There are ways to make money even in a bear market, and there are ways to lose money, even if the market’s in a bull run. So here’s what you should do in each:

What to do in a bull market

  • Buy early. The best thing an investor could do in a bull market is to buy early in the trend. This puts you in a good position to sell when the market has reached its peak. It’s difficult to determine the start of an upward trend, but there are crypto market indicators you can use to identify your position.

  • Plan your exit. Using market indicators, prepare for the peak of the bull market and sell accordingly. One way to minimize losses is to take profits at regular intervals — instead of selling in one go, you sell little by little as prices climb, so you bank a nice profit during the entire bull cycle.

What to do in a bear market

  • Buy the dip. When you observe that prices are plummeting by the day, don’t freak out. In fact, seasoned investors will tell you to “buy the dip.” This means you buy crypto assets when the prices look dismal, so you get to earn a nice profit when prices start to rise again.

  • Use Dollar-Cost Averaging (DCA). DCA is one of the known methods to protect investors from big losses during bear markets. In DCA, you break up your funds into smaller but equal tranches. You then use these sums to trade several times, instead of using up your entire fund in one transaction.

Investors use DCA because they can’t accurately predict when prices have reached rock bottom. So when they observe that prices are low, they buy a little. If they observe that prices dip a little more, they buy a little more, and so on.

Riding bulls and bears

In sum, a bull market is characterized by an upward trend in prices and optimistic investors, while a bear market sees a downward trend and pessimistic investors. You can take advantage of both: in a bull cycle, you’re first to buy. And when the crypto market turns into a bear, you are encouraged to buy the dip and use DCA for a secure position.

Whether you are buying during the bull or bear market, always remember that cryptocurrencies are a high risk investment. Seek professional advice for your financial decisions.

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