If you’re new to cryptocurrency you’ll have undoubtedly stumbled upon the term ‘bear market’. It’s a famous phrase in this space…
It’s because cryptocurrency has experienced some crushing bear markets and investors are not quick to forget.
What is a Bear Market?
A bear market is a market where prices are dropping and selling outweighs buying. This can be applied to any financial market, it’s not exclusive to crypto.
There are some conditions that must be met for a market to be classified as a bear market. For instance, a bear market should last a number of months at least. If an asset has a bad day or week, that doesn’t change the overall market trend. This could happen in the middle of a multi-year uptrend. A longer, more sustained drop and a change in trend will lead to the classification.
The magnitude of decline matters too. A bear market requires a fairly hefty drop in price. A general rule of thumb is you can classify a market as bearish if price has decreased by 20% or more and the market has been trending downwards for at least two months.
An Investors Nightmare
For investors an uptrending market is a dream, but a market that’s dropping is a huge pain in the side.
A down trending market is the opposite of what investors want. If investors cannot buy an asset and make a profit then the amount of investors starts to dwindle. New investors are hesitant to enter and old investors are either selling to cut losses or afraid to buy more. This is part of the reason bear markets often continue on for so long.
A Diamond in the Rough
Not everyone loses money during a downtrend. There is one excellent way to profit even in a market down trend: shorting.
Opening a short position allows you to profit when the price of an asset drops. You are essentially betting that you think the price is going to go down. If it does, you’ll make some money.
Crypto’s Last Bear Market
Cryptocurrency experienced an incredibly strong bull market throughout 2017, which was met by an equally powerful bear market throughout the entirety of 2018, with some relief showing up at the beginning of 2019.
Bitcoin fell from $20,000 to $3,000, but it wasn’t the biggest sufferer. Many altcoins fell upwards of 95% and are yet to find relief. Some investors are still clinging on, hoping the bulls will return.