The phrase bear market denotes a downward trajectory in market prices. This term is commonly utilized not just in the realm of cryptocurrencies, but also in conventional markets like stocks, bonds, real estate, and commodities markets.
Typically, a bear market is characterized by a substantial market downturn that results in significant price declines within a relatively brief timeframe. In contrast to conventional markets, the cryptocurrency markets are smaller and hence exhibit greater volatility. As a result, it is not unusual to witness more intense and extended bear markets in the cryptocurrency sector, with price reductions of up to 85% being fairly commonplace.
In conventional trading environments, it is often suggested that a bear market is signaled by a 20% price decrease within 60 days. This decline is usually due to investor pessimism stemming from a lack of faith in the overall performance of market prices and indices. Reacting to this negative market sentiment, investors begin to offload their assets, further exacerbating the drop in prices and frequently leading to periods of capitulation. Some examples of US indices are the Dow Jones Industrial Average (DJIA), the S&P 500, and the Russell 2000.
A decrease of 20% in market values is typically seen as the onset of a bear market, but most indicators of a looming bear market aren’t as clear. Crypto traders and analysts employ various methods and systems to identify other subtler bearish signals and trends. These include tools such as moving averages (MAs), the Moving Average Convergence Divergence (MACD), the Relative Strength Index (RSI), the On-Balance Volume (OBV), and other technical analysis indicators.
Bear vs. Bull Markets
A bull market, characterized by investor optimism and rising prices, is the antithesis of a bear market. This upward trend (bullish) fosters a positive market sentiment, leading traders to invest increasingly, thereby driving prices even higher. Historical data reveals that from 1929 to 2014, the US experienced 25 bull and 25 bear markets. The average loss during bear markets was -35%, while the average gain during bull markets was approximately +104%. These patterns demonstrate the role of market momentum in perpetuating consistent price increases (in bull markets) and decreases (in bear markets).
