The term bull market is used to describe a longer period of price growth. Price growth in the value of a stock, or in our case of the cryptocurrency market. A bear market is the exact opposite. The meaning of a bear market is when the value of a stock or Bitcoin is decreasing for a longer period of time.
If you regularly follow the prices of bitcoin and cryptocurrency, these words are unavoidable: bull market and bear market. But what do these words actually mean? And why are these two animals used to describe positive and negative market patterns? We will be explaining that to you in this article.
Characteristics of a bull market and bear market
The terms bull market and bear market are used in all financial markets, including the cryptocurrency market. These words are primarily used in the traditional stock markets, and refer to a price trend:
- A bull market is characterized by optimism, which results in prices increasing.
- A bear market is characterized by pessimism, which results in prices decreasing.
What does bull market mean?
In a bull market the price of a financial asset has been in a uptrend for a longer period of time. But why is a bull representing positive price movement? The term originates from the way a bull attacks its prey. A bull uses its horns to drag up its prey, investors use their capital to drag up the price of stocks or cryptocurrency.
During a bull market, investors are very optimistic. This form of optimism is also called being bullish. When people claim to be bullish, they actually say they’re confident that the prices will increase in the long term. A longer period of positive price movement is referred to as a bull market.
On Wall Street you'll find a statue of a bull. This bull symbolizes the confidence in the (stock) market, and the hope that the prices will increase.
The year 2017: the most recent Bitcoin bull market
Bitcoin has also experienced several bull markets. The most recent bull market is remembered by many. In the year 2017 the prices of bitcoin and cryptocurrency increased exponentially.
All of a sudden everyone was talking about digital currencies. Bitcoin sparked interest in the minds of a wide range of people; from hairdressers to Warren Buffett and Bill Gates. The fear of missing out was enormous among investors. Cryptocurrency exchanges were busier than ever.
In 2017, everyone had boundless optimism in cryptocurrencies. New ICO's were launching almost daily and everyone wanted to get rich quickly by investing in (new) cryptocurrencies and tokens. #WhenLambo was a common hashtag on Twitter.
Not entirely unjustifiably so: the bitcoin price increased from one thousand euros to over sixteen thousand euros in just one year time.
What does bear market mean?
In a bear market the price of a financial asset decreases continuously. According to many financial platforms and websites a market that decreases 20% or more is considered to be in bear territory. The fact that a bear is used as symbol of a bear market is also no coincidence. When a bear attacks its opponent, it strikes down with its claws. This too can be accurately compared with the decreasing stock and cryptocurrency prices.
There is also another story about the origin of the term bear market. For this we have to go back to the 18th century. Retailers of bear skins sold their skins before they bought new ones from poachers. They were hoping that this would cause the cost price of the skins to decrease. People who participated in this were referred to as ‘bearskin jobbers’. This was soon shortened to 'bear', and that's where the comparison with the bear came from.
During a bear market, investors are generally pessimistic about the future. When people claim to be bearish, they indicate that they are confident that the prices will decrease over time.
In Frankfurt, you can see a statue of a bull and a bear at the stock exchange building. This symbolises the proverbial 'fight' between bullish investors and bearish investors.
The year 2018: the most recent Bitcoin bear market
In 2018 Bitcoin and cryptocurrency were in a bear market. Prices were falling, and investors had less confidence in bitcoin and cryptocurrency prices.
This is also reflected in the mainstream media. In 2017, news media still praised the price of bitcoin and cryptocurrency, in 2018 you mainly read opinions of investors who had lost confidence in the price of bitcoin.
The price of bitcoin fell from sixteen thousand euros at the end of 2017 to about three thousand euros at the end of 2018.
Alternation of bull market and bear market
It is good to know that the cryptocurrency market is an alternation between bull markets and bear markets. And also that a short upswing is not necessarily a transition from a bull market to a bear market.
For example, a temporary drop does not necessarily mean a bear market. If prices continue to rise in the long term, we are still talking about a bull market. For example, 2017 has not been the only bitcoin bull market, and there have also been several periods of structural bitcoin decline. If you look at the longer term, you will see that the value of bitcoin has generally only increased.
Unfortunately we can’t predict the future, but we’re all excited about what the future of bitcoin and cryptocurrency will look like.