An investor’s guide to what is bull and bear market in cryptocurrencies. How to take advantage of such trends in the cryptocurrency market?

As of January 2021, the cryptocurrency market capitalization has surpassed $1 trillion. The developments in the crypto industry are progressing at a rapid scale. It is gaining attention from leading FinTech providers - who now offer access to digital assets and investors - who are keen to include crypto assets in their investment portfolios. Amidst the rising mainstream adoption, concepts from traditional financial markets are used for cryptocurrency markets as well. Case in point - bull and bear market.

Market trends like the bull and bear market define the overall direction of a digital asset or the cryptocurrency market as a whole. Experienced traders closely watch these trends to define their trading strategies. It is possible for traders to profit from bull and bear cryptocurrency markets, provided they understand the trend beforehand. In this article, we explore the definitions of the bull and bear cryptocurrency market and understand how traders can take advantage of such market trends.

What is Bull Market in Crypto?

A bull market also referred to as bull run, is a state of market with upward trends within a specific time period. While the term originally is from the stock market, it is also used for other financial markets including forex, commodities, and now cryptocurrencies. The bull run in crypto is also referred to for specific assets such as Bitcoin. In other words, when the price of Bitcoin is trending in an upward direction.

While bull markets signify uptrends, it does not necessarily mean that prices don’t fluctuate. However, the trend on a larger-time frame is positive or up. Hence, a bull market may have drops or consolidation in prices of assets but the overall movement is in an uptrend. One of the aspects in defining the bull market is the time-frame taken into consideration. Moreover, defining a market trend with higher time frames, in months or years, have higher validity as compared to lower time frames.

Being ‘bullish’ refers to the overall sentiment of investors who expect the price of an asset or cryptocurrency market to rise. It does not signify the state of the market, rather it refers to the expectation of the market moving in an upward direction.

Strategies Used in Bull Cryptocurrency Markets

Traders generally prefer to ‘go long’ during bull runs as prices are moving upwards. A long position refers to buying an asset with the expectation that the price will rise. In the cryptocurrency market bull run, traders generally prefer the buy and hold strategy. It is an investment strategy wherein traders buy an asset expecting that the price will move up in a longer frame of time.

Another strategy used by traders during bull markets is the Dollar Cost Averaging (DCA). In DCA, traders buy small amounts of assets at regular intervals instead of investing the entire amount with one trade. This strategy enables traders to access a lower average purchase cost of an asset since even the bull markets will experience consolidation in prices.

By using tools like Cryptohopper, traders can also automate their strategies. Users can input the conditions for buy and sell of a cryptocurrency asset without the need to constantly monitor the markets. The hopper automatically takes action based on a predefined condition. Additionally, a user can also set up manual DCA orders in Cryptohopper, which will enable automatic buy of an asset at regular time intervals without human intervention.

What is Bear Market in Crypto?

A bear market is a state of the market with a downward trend within a specific time period. Similar to bull markets, a bear market can also be used for specific assets like Bitcoin, Ethereum, and more. As compared to bull markets, trading in bear markets can be complex and difficult for novice traders.

Furthermore, in some instances, price declines during bear markets can be quite steep and fast. As the market is moving in a downward trend, many traders exit their position; sometimes leading to mass liquidations. This leads to the market moving further down and more sellers trying to exit positions.

However, at the same time, with strategic moves, investors can generate profits trading in bearish market conditions. Being ‘bearish’ refers to the overall sentiment of investors who expect the price of an asset or cryptocurrency market to fall.

Strategies Used in Bear Cryptocurrency Markets

A mix of fundamental and technical analysis is used for predicting upcoming trends in the cryptocurrency markets. Technical indicators like Moving Averages (MA) and the Parabolic SAR aid in recognizing market trends.

Traders apply position to ‘go short’ during bear markets as the prices are moving downwards. Cryptohopper facilitates traders with strategies to profit even in bearish or downtrends in cryptocurrency trading. Moreover, it is possible to automate strategies like shorting with Cryptohopper. It involves selling a cryptocurrency asset before you actually own it, and buying it later on at a lower price (as the market declines).On Cryptohopper, shorting functions more like a buyback feature, meaning that you first have to sell an asset before you can short it. The Hopper will reserve funds of the sell trade to buy back the same asset for less.

Another feature that can be leveraged from Cryptohopper to optimize the crypto trading experience is Triggers. Triggers in Cryptohopper enable the hopper to act automatically in accordance with market trends. Traders can set up various triggers on Cryptohopper’s trading interface which will automatically be activated depending upon the market trend.

Bottom Line

In this article, we broadly covered conditions of bull and bear markets in cryptocurrency trading. We also discussed tools and strategies that can be implemented to optimize the cryptocurrency trading experience.

Both the markets present opportunities for profits conditioned upon the strategies that need to be implemented. At the same time, it is essential to minimize risk elements irrespective of the market trends. Cryptocurrency markets are highly volatile and it is necessary to conduct thorough due diligence before investing.