Crypto Bear Market
Although the ups and downs are a part of the process there exist certain terms for them called “bull run” and “bear run” also known as a bull or bear market. The two terms hold their relevance even in the world of cryptocurrencies as it falls under the bracket of a market.
In this issue let’s understand what exactly is a bear market and how it affects the investors and also the people of the world.
What is a Bear Market?
A bear market is characterized by a swift and consistent decline in market prices. It's a metaphorical nod to the way bears attack, swiping their paws downward in battle. Historically, the term was derived from an old practice where a 'bare' bulletin board signaled a weak market.
A bear market becomes even more evident when the prices of most commodities continue to drop, with expectations of further declines. It's essential to recognize that all markets, whether stocks or cryptocurrencies, are interconnected.
A rise or fall in one often reverberates through the other, barring instances of manipulation, which is considered illegal.
Conversely, a "bull run" represents the opposite scenario, where market prices are on an upward trajectory.
Crypto Bear Market
Just as traditional stock markets look to specific indices like Sensex or NASDAQ, the cryptocurrency market's basic sentiment centers around Bitcoin's price (BTC). Most cryptocurrencies rely on Bitcoin's price movement. In an ideal scenario, when Bitcoin's price rises, the values of altcoins (cryptocurrencies other than Bitcoin) tend to follow suit within a day or two.
Conversely, if Bitcoin's price declines, the same pattern can be expected with altcoins. However, it's crucial to acknowledge the crypto market's high volatility, which operates round the clock. Even the slightest global event can significantly impact prices.
Diving into the emotional aspect, a bear market in the crypto world often aligns with Bitcoin halving events. This phase indicates that supply surpasses demand, leading to price drops. This decline in price triggers fear, uncertainty, and doubt, commonly known as FUD. During a bear run, all three elements of FUD peak, pushing prices further away from all-time highs.
The last two years have witnessed a historic bull run in the crypto market, followed by recent bearish trends. In 2018, Bitcoin's price plummeted to around $3,500, only to surge to $11,000 by mid-year before dropping to $5,000 due to the COVID-19 pandemic.
Despite stock market dips in 2020, Bitcoin's halving in May led to a significant price increase. By the end of the year, Bitcoin neared $30,000, eventually reaching an all-time high of $68,000 a year later. However, the current price, at approximately $27,000 (at the time of writing), signals a significant bear market, with other altcoins also far from their all-time highs.
Significance of a Bear Market
In 2022, the crypto market faced multiple bear runs, each triggered by distinct events. Russia's invasion of Ukraine set the tone, followed by the collapse of Terra Luna and UST. Rising inflation and its impact on the global GDP further added to the market's uncertainty.
Despite the initial dismay of a bear market, many traders capitalize on it. Shorting, a profitable technique, gains traction. Additionally, lower token prices make cryptocurrencies more affordable, potentially boosting NFT sales.
Furthermore, a bear run acts as a filter, separating short-term investors from long-term ones while weeding out panic sellers.
What should one do in a Bear Market?
Navigating a bear market can be challenging, especially for inexperienced traders. However, several strategies can help:
With lower prices, buying more units at a reduced cost can lower your overall average price.
Certain exchanges allow investors to stake their tokens and earn interest, providing a way to earn crypto without additional spending.
Stable Coin investing:
Stablecoins like USDT or BUSD, pegged to the US dollar, offer stability, making them ideal during bear markets. Staking stablecoins can guarantee additional returns.
Predicting the end of a bear market or the exact bottom is challenging. However, it aligns with the age-old adage that what goes up must come down. While markets experience ups and downs, it's often long-term investors, those who invest in fundamentally sound cryptocurrencies, who reap significant returns.
In the highly volatile world of cryptocurrencies, doing your research (DYOR) is essential before taking the plunge as an investor. Despite the challenges, the crypto space continues to evolve, offering opportunities and risks that savvy investors can leverage to their advantage.