Bullish and bearish markets and their characteristics

September 20, 2023
Last Update December 07, 2023

Specialists refer to the market as being bullish or bearish, depending on the price movements. The direction of the market is important for traders because it determines trading strategies.

The prices of any asset experience constant volatility; the price may change within a very short time. But when we speak about a bullish or a bearish market, we refer to longer periods. Another sign of a bullish or bearish market is the price upswing or downswing. In the stock market, the price swings shall be for 20% or more to be able to speak about a bullish or a bearish market. But in crypto, these changes are much bigger.

Bullish market

A bullish market refers to favorable economic conditions. Investors are buying, demand is higher than supply, market confidence is increasing, and it is usually accompanied by positive market sentiment.

In the crypto market, the bull runs can be very strong, with price surges by 40% and more. It is because the market scale is still very small, much smaller than traditional markets, and thus, it is highly volatile.

Causes of a bull market

As it was mentioned, investors are the main cause of the bullish market. When they feel that the prices are up to rise, they start buying assets in the hope of selling them later for a profit. If they buy for a long time, the asset price starts growing, which nurtures the optimism of investors who continue buying.

Along with investors’ confidence, the general situation in the market causes an impact on the assets’ prices. So, gross domestic product and low unemployment rates also push the market to a bullish run.

But the crypto market is still new. That’s why some factors that don’t impact the prices of traditional assets may be important for crypto assets. These factors include:

  • The support of influencers, famous people, pop stars, etc.
  • Introduction to institutional capital (when big companies invest in crypto)
  • Growth of acceptance by traditional financial institutions
  • Unique events that demonstrate the vulnerability of traditional financial systems (COVID-19 caused major disruptions in traditional systems, including financial ones, and this led to the growth of crypto acceptance)

Characteristics of a bull market

The main features of a bull market are the following:

  • Price increase over a prolonged period
  • Demand exceeds supply
  • Investors’ confidence is high
  • The buzz around cryptocurrency in social and mainstream media
  • Interest in cryptocurrency among celebrities, influencers, and those sectors where earlier, no interest was shown
  • Significant price surges in the event of bad news and slight price drops in the event of bad news

Bearish market

We speak about the bearish market when the value of crypto has fallen by at least 20% and continues to fall. The downward trend impacts the investors’ willingness to buy crypto, and with it, the market is pushed down again. 

During the bearish trend, the economy is slow, and the unemployment rates are growing, as a rule. These negative conditions can be caused by major collapses in the economy, political and economic crises of various scales, and even natural disasters.

Even though traders tend to buy assets in the bearish market in the hope of selling them later when the prices start growing, it doesn’t help the market to recover. It happens so because it is difficult to determine whether the bearish run is going to end soon, whether the asset price is going to recover at all, and the general feeling of insecurity that dominates the market.

Investors don’t have the motivation to invest in crypto. Instead, they hold off on investments in fear that a new drop is coming or that a specific asset may never recover.

Some start selling their holdings in a panic, thus pushing the asset price down and creating another downward spiral.

How to determine that a bearish run started

There are many signs that indicate the start of a bearish run. But the main ones are the following:

  • Decrease in trading volume
  • Negative sentiment from the traditional financial market
  • The asset price in the futures market is lower than the current price
  • Interventions of regulatory bodies are more frequent

Characteristics of a bearish market

The main features of the bearish market are the following:

  • Prices are decreasing over a prolonged period
  • Supply exceeds demand
  • Investors’ confidence in the market is low
  • Mainstream and social media don’t show interest in crypto, or the interest is negative
  • The general distrust of crypto
  • Low highs in the event of good news
  • Increased lows in the event of bad news

Bottom Line

Even experienced traders can not always determine whether a trend has changed and how the prices are going to move further. Only a thorough analysis of market conditions and sentiments and combining all possible signals can help you to forecast the asset price movements correctly.