Cryptocurrency trade is slowly gaining momentum all around the world. The high volatility of the crypto assets has caused it to struggle continuously where a little change in any associated factor brings a drastic change in prices in the financial market. This introduced the concept of crypto bear market.
Where the concept of cryptocurrency is new to the people, at the same time there are many terms and jargons related to it that leave people perplexed at times. Here is a comprehensive article that will help the people especially the beginners to learn about the concepts and terms involved in crypto bear market.
What is a Crypto Bear Market?
Crypto bear market is the term used for the financial market where the value of cryptocurrency major cryptocurrencies declines continuously. For example, the value of Bitcoin may fall by about 20% from its recent value and may continue to fall. The crypto bear market is characterized by low employment opportunities for the traders. It makes the economic activities slower.
These poor economic conditions could be a result of weak economic policies, sudden burst of market bubbles, any geopolitical crisis in the region or sometimes even due to the unexpected natural disasters. Such an economic condition also affects the ongoing trade of other assets and sets a further declining pattern for the investors. A bear market usually portrays a picture of pessimism and lacks any hope and confidence to get back to trade again.
As soon as there is any news of calamity, the market prices start declining. This results in stopping the market activity as the traders start thinking that the market values may decline further leading to more severe losses. This spiral continues in the downward direction, where the investors prepare themselves mentally for even worse market conditions.
On the other hand, the bear market also facilitates the investors and traders to buy the crypto assets at low and cheaper rates. But at the same time, no one can exactly predict that when the bear market will come to an end. It creates an insecurity for the traders that whether the prices of the assets will increase again or not in the future or may lead to loss for the traders.
In the panic situation created, many traders immediately stop their ongoing trading activities and sell their assets eventually. With the passage of time, the bear market gains momentum slowly and gradually and economic activity starts normalizing again. The traders slowly gain the confidence to invest again and repair their economic losses. This again starts a crypto bull cycle then.
What are the Causes of Crypto Bear Market?
When the market prices begin to fall, this marks the beginning of crypto bear market. When the prices decline continuously, the investors and traders start thinking that the prices will fall further from now on. This causes them to lose confidence in investing in the market that leads to the downfall of the economic activity further.
Natural calamities such as pandemics, disasters, wars or even geographic political crisis act as the trigger warning for beginning of bear market. This causes the economy to slower down. The policies and regulations set up on the local businesses and the intervention of government officials in the market activities also lead to crypto bear market.
As any stock market trends could be predicted easily by the professionals and experts if any downfall occurs, but this is not the case here. Similar to any crypto market, it is difficult to predict if the bear market will follow the trends in past or not as the crypto market is relatively still a new concept.
What are the Indicators for Beginning of a Bear Market?
The bear market is caused by variable factors every time, but one can predict the start of the bear market through these common indicators mentioned below.
- Pessimist Sentiments
It happens when the higher officials or the authorities start calling the crypto trade or market as a scam or fraud. This causes the traders to lose confidence in investing that leads to downfall of the market.
- Trading Volume Decreases
Due to the prevailing uncertainty and unpredictability, people stop investing in the market. This leads to decline of market due to low economic activity.
- Backwardation
The price of an asset continues to fall that creates an indication that in future it will be lesser than the present price of the asset. This causes slow economic activity.
- Death Cross
This is a technical indicator for the start of a bear market. This is related to crossing of an asset from a moving average of 50 days to moving average of 200 days.
- Variation in Federal Rates
The sudden change in the rates of the reserves at which the banks borrow the assets may change within a day.
- Intervention of Higher Authorities
The interference of the government officials and unnecessary regulations imposed by them is also an indicator. It creates a hurdle in the crypto activities when the government officials make the situation complex. Many trade activities then happen offline causing a decrease in the financial activities.
What are the Distinct Characteristics of a Bear Market?
Some of the normal attitudes and characteristics of a crypto bear market are as follows
- The supply of the assets exceeds the demand of the assets.
- The prices of the product continue to decrease over a period of time.
- Public starts talking pessimistically about the crypto assets and currencies.
- The traders and investors become uninterested in investing further in crypto.
- The professionals and the analysts become hopeless about the crypto market.
- There happen very lesser highs in case of any good news.
Ways to Invest in a Bear Market
There is a lot of risk associated with investing in the crypto bear market. The traders have lost confidence in the assets and the prices of the products continue to fall. But at the same time, the traders also think about the increase in the prices in the future that may lead to double profit. This makes them buy the crypto assets at relatively very low rates and then sell them at the skyrocket rates when then bear market passes and bull market returns.
Some traders also follow the approach as they sell their crypto assets as soon as they foresee that the market is moving towards decline. When the bear market has happened completely, they again purchase those assets are relatively very lower rates than before.
Crypto markets are totally unpredictable; therefore, one cannot predict anything about the duration of the bear market. In case of any natural calamities or recession, this period may last longer than one thinks, and the prices continue to drop down. Therefore, one has to take a decision with uncertainty involved in it. Buying an asset at that time may lead to profit but at the same time if prices fall further, one could be at loss too.
Important Terms Related to Bear Market
Some of the concepts and terms associated with the crypto bear market are mentioned below.
- Accumulation Phase
It is an association phase where the traders and the investors are active in buying the assets at lower rates in the bear market. The accumulation phase in the market marks the start of increase in the prices again. This is a sign for the traders that bull market is returning.
This is an alternate of Bitcoin. This cryptocurrency was actually created to make better the existing structure of the bitcoin network. Another aim for creating altcoin was also improve the bitcoin by adopting a totally different model.
- Bear Market
A bear market is a duration of decline in the market prices. The prices of the crypto assets continue to fall, and it happens for a longer time duration. This is a period of hopelessness and pessimism for the traders and crypto holders.
- Bull Market
A bull market is the one where the prices of the assets are constantly rising in value. The traders invest more and more in such markets. The economic activity is high and profitable. Bull markets are always referred to periods of hope and optimism.
- Bearish
When any crypto market faces a condition where the prices of the assets are declining continuously, it is called as bearish market.
- Bullish
If the prices of the crypto assets and currencies begin to rise, the market will be known as bullish market.
- Bullish Reversal
When the prices of the crypto assets continue to fall for a longer time, then comes the period of association and consolidation. This may happen within the range of 50-day moving average or a 200-day moving average. This marks the start of a bull market again.
- Bag Holder
A bag holder is a term used for the person who buys the crypto asset at a very higher rate. The asset then suddenly loses the value due to volatility of the market. The person owning the currency is then left with nothing except an asset that has become worthless. Therefore, it is given a similarity to a bag that is empty and contains nothing in it. It is called as bag holder.
- Bubble
When the price of an asset increases very high suddenly or there is a sudden hype created about an asset in the market, it is referred to as bubble. It is often seen that when a hype is created or the price of an asset skyrockets, it is predicted that the market may crash or the value may fall suddenly, it is said the bubble may burst.
- Crypto Crash
A crypto crash is marked when within a day, the price of a certain asset falls suddenly to a low value normally by 10% or more than that. Crypto crashes usually happen in a market due to fear or uncertainty of the crypto market.
- Capitulation
This term is referred to the process where in the bear market, the price of the asset continues to fall. The asset then undergoes an enormous selling pressure where the traders try to get rid of the asset as soon as possible.
- Correction
A correction in price is when the price of any crypto market falls from the actual price by 10% or more than that. It happens when the price declines after staying at peak value for a number of days, weeks or months.
- Dead Cat Bounce
When the prices rise again for a temporary period of time after declining, it is termed as dead cat bounce.
- Death Cross
This is a mark that is set on the chart by the traders and market experts. The death cross limit is said to be crossed when the 50-day moving average crosses below the 200-day moving average. This marks that the prices will continue to fall, and the decline period will be prolonged.
- Diamond Hands
This is a term used by people on social media such as Reddit or Twitter. This term is used for the people who are not affected by the falling prices and continue to buy the crypto assets and currencies. These are the people who look for the long-term benefits of the crypto assets.
- FOMO
This is the acronym that is used for “Fear of Missing Out”. This term refers to the condition of the traders where they might think that they will miss out any good opportunity of buying the assets in the period of bear market. It is related to the uncertainty and volatility of the crypto market.
- FUD
It is a pessimistic term used as a short form of Fear, Uncertainty and Doubt. It represents all the negative sentiments related to the bear market.
- Golden Cross
This is the limit that is marked on the chart by the experts where the 50-day moving average crosses above the 200-day moving average. This signifies that the bullish trend will continue further, and the prices will continue to increase.
- Liquidity
This term is referred to the facility of swapping a cryptocurrency by another crypto asset easily. The crypto assets that hold good liquidity attract a larger number of traders and investors towards them.
- Liquidation
When any business or firm decides to end their economic activity and services, they decide to sell all their assets and possession. It is done so to pay back the people such as lenders and traders the funds they invested. It is called liquidation of assets. This can also be done by the traders to increase their capital or when they think that holding an asset is of no use further.
- Market Capitalization
This is the sum of all the currency and tokens that are being circulated in the market at a time being.
- Margin Call
Margin call is marked when the required limit in the owner’s account is not met. This happens when the owner’s profile value is less than the demand of the broker. The owner has to then deposit more funds in the account or sell his recent assets.
- Moving Average
This is one of the most commonly used technical indicator on the chart made by the experts. It is actually a line that signifies the change in price after a given time period such as monthly, after four months or daily etc. It is a tool that helps the traders to identify the price hikes and downfalls.
- Oversold
When the price of an asset is very low or decreased, it is termed as over sold. It is predicted by an indicator RSI in the chart. This indicates that the bullish reversal in price is soon to happen.
- Pump and Dump
This is an artificial increase in the price of an asset. It is done by increasing the price of an asset by manipulating it through buying it in bulks or creating a hype through social media. This is done for gaining more profit.
- Risk on and Risk Off
This a theoretical concept that explains that when the market is rising, the traders invest more in riskier assets such as stocks and crypto. On the other hand, they go for bonds and safe sidelines when the market is declining.
- Short Selling
This term refers to the condition when one sells his possessions when the market begins to decline with the hope to purchase it again at lower prices. This helps him to earn profit.
- Trading
It is the exchange of assets that happens between two parties. It is usually done to gain profit from the initial investments made.
- Volatility
Volatility of an asset is measured by the fluctuation in its price. An asset is said to be volatile if its price is uncertain and shows sudden swings.
- Whale
Whale is the term referred to the investor who owns a huge sum of capital.
- Yield
It is the sum of all the return capital generated through a principal invested in a trade.
Conclusion
A bear market is unpredictable and totally uncertain, yet the traders need to be aware of the past trends and strategies in order to overcome the changes happening in the market.
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