Bull Market vs Bear Market: What’s the Difference?
Crypto Basics

Bull Market vs Bear Market: What’s the Difference?

Created 1yr ago, last updated 1yr ago

Bull market and bear market are terms used in crypto quite frequently to refer to the ups and downs in prices. Let's look at the major differences between them!

Bull Market vs Bear Market: What’s the Difference?

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The cryptocurrency market is one of the extremes, with its bull runs producing some of the best-performing assets of all time and generating a handsome profit for savvy investors. On the other hand, bear markets can lead to catastrophic losses that can catch both new and experienced investors unawares.
When demand exceeds supply for an extended period, a cryptocurrency can experience a sustained price rally. When this goes on for months on end and applies to the broader crypto market, it’s considered a bull market. A broad extended decline is considered a bear market.

How Are Bull and Bear Markets Different?

Generally, a bull market is defined as a period in which investor sentiment is positive and an asset has seen a significant rise over an extended period, with further growth looking likely.

On the flip side, bear markets are periods where investor sentiment is low and an asset has seen its value decline considerably.

Though there is no universally agreed definition of what constitutes a cryptocurrency bull or bear market, it is often considered a bull market when the overall crypto market cap grows over 3-6 months alongside increasing trading volume. Whereas a declining crypto market cap and dwindling trading volume over 3-6 months indicate a bear market.

Broadly, bull and bear markets tend to differ in the following ways:

  • Trading volume: Bull markets are typically associated with high trading volume, whereas this typically dies down in bear markets. Trading volume is usually highest at the peak of a bull market and lowest at the trough of a bear one.
  • Innovation and growth: In many industries, much of the innovation and growth occurs during a bull market. This can be attributed to increased investment and spending power, easier user onboarding, more acquisitions and larger marketing budgets.
  • User and investor sentiment: Sentiment generally increases in a bull market and falls in a bear one. This can be tracked using tools like the Crypto Fear & Greed Index or APIs, like LunarCrush.
  • Startup growth: Bull markets typically include a large number of new project launches, many of which are funded by the public — such as through an IDO or ICO. On the flip side, new project launches are infrequent in a bear market as funding dries up.

Opportunities in Bull and Bear Markets

Cryptocurrency bull markets are often brimming with opportunities, both in the form of new and promising projects, as well as the growth and evolution of existing ones.

In 2021 alone, there were more than 723 IDOs spread across 62 different IDO platforms (often known as launchpads). While many of these failed to generate a sizeable return, some went on to take a place among the most profitable crypto projects of all time. This includes projects like Bloktopia, MetaVPad, My Neighbor Alice and WagyuSwap — each of which achieved a more than 200x return on investment.

While many IDOs arguably had little to no long-term potential, some still went on to put on an impressive short-term performance, and many of the best-performing IDOs have now collapsed far below their opening value.

These include:

  • Dragon Kart: all-time high ROI 241x, current ROI 0.07x
  • Cryptomeda: all-time high ROI 185.7x, current ROI 0.07x
  • BeyondFi: all-time high ROI 175x, current ROI 0.02x
Though the vast majority of the best-performing projects ever were launched in a bull market, opportunities can still be found in the bear market — though they are significantly less common. Projects like XANA, Step App and Sweat Economy, all launched in this bear market but achieved a peak ROI of more than 10x apiece.
Some launchpads have even managed to maintain a positive ROI, including DAO Maker, which generated an average all-time high ROI of 11.6x across its most recent five IDOs — all of which were launched in a bear market.

In bear markets, most cryptocurrencies will experience at least some decline in value. Those that fare the best are usually those with the strongest fundamentals.

Risk-to-Reward Ratio

Bear markets are the dread of many new and experienced investors since even established assets can lose much of their value.

Indeed, between the height of the 2017 bull market and 2018 bear market, the average cryptocurrency lost a gut-wrenching 88.2%. And many of these failed to recover their value in the 2021 bull market.

Despite this, for proven and fundamentally strong assets, investments during a bear market can represent extremely asymmetric opportunities, where the potential upside dwarfs any potential downside.

Many of the most successful traders follow the motto coined by Baron Rothschild:

“The time to buy is when there's blood in the streets.”

This refers to the potential profits that can be made during times of panic, such as when the sentiment is at its lowest or when negative news leads to an overblown reaction in the markets.

Bull markets, on the other hand, often seem like the optimal time to invest — since many traders trade the trend and follow the money. But while this can be relatively safe during the early stages of a bull market, toward the end, the risk-to-reward ratio can be skewed toward risk.

Is It Possible to Predict a Bull or Bear Market?

As you might expect, practically every cryptocurrency trader has attempted to predict the beginning/end of a bull or bear market.

With the potential to make staggering gains by going long during a bull market or short during a bear market, an accurate model for predicting either of these events would be incredibly lucrative.

Unfortunately, there is no perfect predictive model.

Though there are several indicators and models to track the bottom and top of a cryptocurrency market cycle, most have only been backtested on historical data, and it remains unclear what their predictive potential is.

Some of the most popular models include the Bitcoin Stock 2 Flow Model (S2F), which looks at how long it would take to equal the current Bitcoin supply based on its current emission rate and can be used to forecast its potential future price action.
Other popular models include the Bitcoin Rainbow Chart, which uses colored bands that follow a logarithmic regression to indicate when Bitcoin is overbought or oversold.
There’s also ColinTalksCrypto's Bitcoin Bull Run Index (CBBI) which aggregates nine metrics to see whether Bitcoin is likely at the top or bottom of its cycle.

Taken individually, it is unlikely that any indicator will have perfect predictive power. But some traders believe that some combination of these can provide useful insights.

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