What is a bear market?

Sun 29 Aug 2021 ▪ 8h20 ▪ 4 min de lecture - par Nicolas Impellizzeri

The term bear market is used by crypto investors to refer to a market where most stocks are declining in value, as opposed to the term bull market, which stands for a market on the rise.  A bear market has its distinct characteristics and is important to understand if you want to make the most of it. If you don’t react to what’s happening in time, you will suffer great losses. 

Can you profit in a bear market?

bear market is characterised by prolonged price declines, which means that most cryptocurrencies are going to see their capitalisation and value go down. So, you might think that this is a very bad time to invest and sell your assets. 

However, it’s actually possible to make profits in a bear market if you “short”, that is to say, bet on prices dropping.

Nevertheless, it’s not easy to understand for a beginner and you should only short when you know exactly what you’re doing.

Overall, it’s much harder to make a profit in a bearish market than in a bullish one. When all prices go up, it’s usually enough to invest in just about anything to gain profit, while implementing a similar strategy in a bear market may cost you a lot of money.

When does a bear market end?

This is a question many crypto investors ask, and the answer is: we don’t know.

It’s extremely difficult to predict the end of a bear market in advance, even for a professional. For a bear market to change its trend, many criteria need to be met, such as increased investor confidence or positive news on what certain countries think of digital assets.

Be careful in a bearish market, because it’s possible to suffer big losses. It’s better to wait until things settle down and the recovery phase has started, rather than invest in an unstable market.

When in a bull phase, everyone is over the moon and many people start investing in whatever, since it doesn’t matter: it’ll bring profit anyway. 

Unfortunately, it’s also a bad idea because, at one point or another, there will be a reversal.

Even though we know that we will eventually end up in a bearish period at some point, it’s extremely difficult to predict when this will happen. When big investors start making profits, all the smaller, less experienced investors will continue to invest thinking they can benefit too.

In 1929, Joe Kennedy supposedly said that when your shoeshine boy starts giving you stock tips (in our case, tips about Bitcoin and other cryptocurrencies), it’s time to sell. If the news of an ultra-profitable market has reached those who know absolutely nothing about investing, it’s a sure sign that shares are overpriced and about to fall big time. 

Conclusion

Bear and bull market cycles are inevitable, and not only for cryptocurrencies. The main difference between digital currencies and traditional ones is that the range of bearish and bullish movements is much larger in the crypto industry.

It’s always easier to profit in a bull market than in a bearish one, even for an experienced investor who has mastered shorting strategies. 

You have to be particularly careful before investing in a bear market because the consequences can be catastrophic if you don’t know exactly what you’re doing. 

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Nicolas Impellizzeri

J'ai découvert le monde des cryptomonnaies en janvier 2018. Arrivé au pire moment pour investir, je n'ai depuis lors jamais cessé de me former et partage désormais mes connaissances afin de faciliter l'adoption des cryptos.

DISCLAIMER

The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.

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