When is the right time to buy or sell cryptocurrencies?

The bull statue has long been a symbol of Wall Street – the historic center of New York’s financial district. Alternating between a bull market and a bear market is common in traditional stock markets. So, how do you know when a bull or bear market will appear?

For the cryptocurrency market, this concept is of particular importance due to the specificity of the field. Understanding the characteristics of bull and bear markets in cryptocurrencies will help you weather downturns and maximize profits during market booms.

Bulls and bears: The origin of the terms

A bull market is usually a market in which prices have risen over a significant period of time. At the same time, a bear market characterizes a prolonged period of decline.

There are several versions of bull and bear markets in the stock market and according to one of them, the name of bear and bull markets comes from the way these animals attack.

The bull lifts its victim with its horns upwards, so the bull market is a bull market. Meanwhile, bears attack from top to bottom, thus symbolizing a drop in price.

According to another version, bear skin traders in the United States often sign contracts for the sale in advance. So when buying them from the hunters, they tried to lower the purchase price to make more profit.

Bulls and bears in financial markets

In the traditional stock markets, a prolonged bull market is suddenly replaced by a bear market. Usually, this precedes a significant negative event in the economy or other sectors. For example, the bear market of 2008 began after the bankruptcy of one of the largest banks in the United States, Lehman Brothers.

Before 2008, the bear market was triggered by the Dot.com bubble – when shares of overvalued Internet companies began to fall. Pandemics, such as Covid-19, or large-scale wars, such as Russia’s invasion of Ukraine, can trigger a bear market.

Bear markets and bull markets can vary in length over time. For example, the bear market caused by Covid-19 lasted about a month from the end of February to the end of March 2020. After that, it immediately turned bullish. At the same time, the bear market in the wake of Nixon’s economic crisis in the United States lasted for almost a year (from 1972 to 1973). The state of the economies of the most developed countries in the world is often the best indicator of the direction of financial markets.

While the causes of bear and bull markets are easy to explain after the fact, predicting them is very difficult. The reason is the human factor. It is not clear at what exact moment that supply will exceed demand in the market and trigger the first wave of price declines.

Bulls and bears in the crypto market

The cryptocurrency market is still quite young, about 14 years if the time of the Bitcoin whitepaper publication in 2008 is used as a reference point.

Sometimes a trader’s lack of understanding of the nature of cryptocurrencies will exacerbate the volatility and instability of the market. It often follows a trend similar to the stock market in terms of when a bear market is replaced by a bull market. The main difference is the depth of the drop and the height of the rally.

Take the bear market of 2022 as an example. The bear market in crypto started in November 2021 and continues so far while in the stock market starts a few months later – in January 2022.

Since peaking in February 2022 and plunging to a low in June 2022, the S&P 500 has fallen from 4,504 to 3,667, or -18.6%. At the same time, Bitcoin plunged from a peak of $69,000 to $19,018 (-56.7%).

It is important to note that we are comparing the most stable cryptocurrency with an index consisting of 500 companies. If compared with other cryptocurrencies and assets, the difference is more striking.

Such fluctuations of the cryptocurrency market can often be observed since 2017, when various coins and tokens began to gain popularity. From there, the crypto bull and bear market became noticeably more ups and downs.

How to survive in bull and bear market?

Investing is always associated with risk. Investing in the stock market is considered one of the riskiest ways to invest. And the cryptocurrency market has a greater degree of risk due to greater volatility during bearish and bullish periods. Investment strategy depends on the goals, capacity and risk tolerance of each investor. At the same time, you should limit your risk by investing some of your money in different assets.

Same with eggs: you should never put all your eggs in the same basket, because if it falls, all the eggs will break. The same philosophy should apply to investments – it is necessary to invest in different assets. The basic rule is: the greater the risk, the smaller the amount invested.

For example, only 10% of the total investment can be invested in stocks and 5% in cryptocurrencies. Other funds are better for fixed-income instruments like bonds.

This approach makes it easy to go through a bear market. If there is only a small amount of money in the cryptocurrency, it is not reasonable to sell it in a bear market. You are better off waiting for the change to a bull market and then taking profits.

It is important to be patient and not make hasty decisions. By the way, buying in a bear market, when everyone is panicking and selling, is considered the ultimate skill.

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