Bull vs. Bear Markets in the Era of Crypto

Bull and Bear Markets Defined

In financial markets, a “bull” or a “bear” market occurs when asset prices trend in a particular direction over an extended period of time. If a market trends upwards and assets grow in value, it’s referred to as a “bull market.” When a market trends downward and asset values decline, it’s known as a “bear.” 

The terms bull market and bear market have been used throughout financial markets for centuries, and the emerging crypto space has also embraced them. With the rapid market cycles and dynamic price movement in crypto thus far, both bulls and bears have plenty to keep them busy.

Whether you’re interested in cryptocurrency, stocks, bonds, gold, real estate, or any other asset, you’ll experience rising and declining markets. Sometimes, bull and bear markets refer to the market for a single asset, such as a stock. Bull and bear markets can also be used when talking about a group of particular assets, such as tech stocks, but mostly, the terms “bull” and “bear” refer to whole financial markets and sectors, or even entire economies. 

Bull and bear markets can last from a few months to many years, and each can vary in many ways. In general, however, for a market to reach bonafide bull or bear status, it must experience a shift of at least 20% from a recent peak or trough.

At the most basic level, when an asset class such as stocks, real estate, or cryptocurrency is trending upward or downward over a marked period of time, this is the simplistic way to describe a bull or bear market. 

How Are Bull Markets and Bear Markets the Same? 

Would it surprise you that since the year 1872, the economy has experienced a total of 26 bull markets? 

Similarly, and most fascinating, it has also experienced the same number of bull markets. That’s right — we’ve seen the exact same number of 26 bear markets as we have bull markets. 

The obvious difference is one market is trending up, while the other trends downward, as mentioned earlier. However, did you know that if we’re talking about the median, bull markets have endured two times the median duration of bear market runs? 

When the data is reviewed, it shows that bull markets have a history of outlasting bear markets by far. Bull markets typically last around 3.5 years (median) compared to the shorter 9.6-month average for bear markets. Thankfully, bear markets have been shorter-lived than their bull market counterparts. 

Why is this true? The majority of asset classes show an upward trend over a period of time and graphically, this looks like a slow climbing ski slope, with the occasional spike up or down. 

Similarly, with crypto, bull markets tend to last longer than bear markets — albeit with fewer historical references, with the first bull run in crypto being back in 2013, though earlier upward trends in Bitcoin date back to 2010. 

What’s the Difference Between a Bull and a Bear Market?

From both a short-term (hourly, daily) and long-term (monthly, annual) perspective, markets operate in a cyclical fashion through upwards and downwards movements as the price of an asset is determined. An easy way to distinguish a bull versus bear market is to think of them as “up” vs. “down,” or “peak” vs. “trough.”

What Is a Bull Market?

Bull = think up (a peak): You might think of a bull market as a time of buoyancy, prosperity, and optimism. Investors and companies have a positive outlook about the economy and financial markets in general. Consensus expects that prices of individual assets — stocks, crypto, gold, for example — are all generally on the rise. 

During a bull market, people have more capital to spend, and they spend it optimistically. They feel that the present upswing could keep getting better and better. If someone is bullish or described as a bull, they are optimistic that the price of assets will continue to rise over the long term, or over a specific period of time.

What is a Bear Market?

Bear = think down (a trough): A bear market generally indicates a market in a period of decline, otherwise known as a downturn. It’s associated with a downward trend in assets’ prices. Prices may drop continuously, while investors generally believe a negative trajectory will continue. 

During a bear market, investors are generally pessimistic about the future and are more averse to risk than they might be in a bull market. When people claim to be bearish, it indicates that they’re generally convinced asset prices will decrease over a specific period of time.

How Long Does a Bull Market Last? 

There are many ways to evaluate data when it comes to the stock market or other asset classes, and it’s helpful to look at different metrics, such as averages and medians. 

If we take a look at the median, bull markets have a median of 3.5 years or 42 months. How much of a median spike was experienced? An impressive 87% increase! 

So, how long does the average bull market run with the stock market? Some bull runs have proven to be longer than others, and many factors are at play. When we review the average bull market time span, it’s important to note that the averages are based on the time period reviewed, as averages can vary based on this. 

If we look at the history of bull and bear markets of the S&P 500 Index, the data shows a return of more than 330% during the average bull market over a period of approximately 6.6 years. 

It’s important to note that this data reference and average includes a time period that fell during and after the great depression, which had a significant economic downturn. The initial market downturn during the great depression resulted in a sell-off. 

This average was calculated using many decades of time, specifically 1926-2019. Reviewing the past performance of any asset class is a solid way to understand the history and market patterns, but it adds insight into the future market conditions. Reviewing the history of a particular asset class is just one aspect of making sound investment decisions. 

Bull runs give investors confidence and keep financial advisors busy. Two types of behaviors come from bull markets: investors who choose to sell off stocks and ETFs and take their wins and those trying to catch the wave before it peaks. 

How Long Does a Bear Market Last? 

There are varied answers on how long the average bear market lasts due to which period of time is being used. 

However, many experts say the average bear market is a total of 9.6 months. This may not seem like a long time, but when investors see downward trends in their investments, such as stocks or crypto assets, it can be unsettling. 

This 9.6-month average for a bear market is the equivalent of 409 days — the downturn can be prolonged by many factors, including other market conditions, wars, and global unrest, as well as unemployment and political factors. 

The median bear market is just under two years, at 19 months, reflecting a median drop of -33%. 

How To Know if Crypto Is Experiencing a Bull Market

As mentioned, bull and bear markets exist with crypto, just as they do in traditional markets, although crypto is known to be more volatile and can have sharper increases, or decreases than traditional investments. 

So, how do you know if crypto is having a bull run? 

One quick way to know if the crypto market is experiencing a bull run is to keep an eye on crypto prices. If you watch the trends in crypto and educate yourself on the latest cryptocurrencies, you will understand when there are recent highs, and you’ll start to see the triggers that cause them. 

When crypto prices are soaring high, you can be sure that investor confidence is also, and this is when crypto gains momentum, both with seasoned investors and beginners alike. 

Additionally, there has been particular interest in cryptocurrency surrounding time periods near the Bitcoin halving. Bitcoin halving events decrease supply and increase demand. Each halving that occurs means less supply, and we know that halving events occur once every four years. 

Also, Bitcoin halving events get hyped before and after the events happen, which spurs more renewed interest in crypto in general, with media attention and people talking more about all things crypto. When in doubt, watch for key trading indicators.

How Long Does a Crypto Bear Market Last? 

If you’re thinking of investing in crypto or are a current investor, know that bear markets haven’t lasted for too long — even though it may seem like a long time. In fact, the average bear market for crypto is approximately 10 months. 

With crypto, market experts generally define a crypto bear market when prices have been down at a minimum of 20% drop for roughly three months straight. During this time, supply increases, there is sell-off, just as with the traditional market, and crypto confidence is lower. Some crypto investors and market experts refer to this time of less optimism as a “crypto winter.” 

The crypto market has had its ups and downs, just like the traditional financial market, and understanding triggers and cycle is important — but still, it’s not predictable and some say it’s a bit of an art and a science. 

Investment Considerations for Bull and Bear Markets

Although the general nature of a bull or a bear market is distinguished primarily by the direction of asset prices, there are other characteristics that are important to consider.

A bull market or bear market framework represents parameters for understanding market sentiment, but that sentiment is contingent upon a number of co-existing factors. 

For example, to determine whether the market is bull or bear, it’s essential to look at not just the market's immediate reaction to particular conditions, but how it's performing in broader contexts. Small movements might represent a market correction — a short-lived trend that usually lasts less than a few months. 

However, bull and bear markets are not ephemeral trends. Instead, they’re longer-term, macro phenomena. For example, if an asset increases 200% in three months and then drops 20% in the next month, then the criteria for a long-term bearish downtrend have likely not yet been met, even though downward momentum is prevalent. Just because there is a downward trend does not necessarily mean it’s a bear market. 

Bull Markets Drive Demand

In a bull market, there tends to be strong demand for assets but weak supply. As a result, prices will rise. In a bear market, more people are generally looking to sell assets than to buy them. The demand is significantly lower than the supply. As a result, prices drop, no matter the asset class. 

However, as the supply and demand ebb further in one direction, the more probable an eventual turnaround becomes. For example, as prices of an asset go up, so can selling pressure from investors taking profits, which increases the supply. This becomes a push-and-pull situation in any market with assets, such as stocks. 

Investor sentiment and market performance are interdependent. In a bull market, investors flock to buy and sell assets with the hope of gaining a profit. During a bear market, the mood is negative and investors don’t tend to expect upward momentum until the bear trend has definitively ended.

Any asset’s market is intrinsically linked to the wider economy in which it is situated. For example: A bearish stock market is typically associated with a weak economy. A weak economy can lead to decreased consumer spending, which generally means lower profits for businesses, which in turn can decrease overall risk appetite for speculative investments. 

In a bull market, people have more money to spend and are willing to spend it, which has the effect of strengthening the economy and spurring economic growth. 

The terms “bull” and “bear” are applicable mostly with regard to extended time frames. Small movements are generally just a correction. A correction is not the same as a bear market. 

Moreover, markets often stagnate and remain steady before they validate a particular trend direction. In such an interim, the string of small upward and downward movements cancels out any gains or losses, resulting in a flat market trend that can continue for periods even longer than the bull or bear markets themselves.

Because prices are trending lower in a bear market, you might make some purchases that could prove beneficial in the long run. The issue with investing in a bear market, however, is that you don't know how long the dip will last or how far the prices will drop. 

Hence, you could risk making a premature buy or you might miss the opportunity to make a good investment altogether. 

Because any investment you make could be speculative, patience is paramount. Investors must factor in both the market volatility and risk tolerance. This is true for even the most savvy investors and factors in any sound investment plan. 

You Can’t Time the Market

You might have heard the phrase, “You can’t time the market.” It remains a maxim in both legacy financial services and cryptocurrency. While bull and bear markets generally have a great impact on the success of your investments, it’s often not until after a trend has reversed definitively that a cycle shift can be confirmed. 

Trying to time your investments and sell at the absolute peak of a cycle, or buy at the lowest bottom is incredibly difficult. One way to manage uncertainty is to follow a plan where you invest a fixed amount at regular intervals, irrespective of which way the market is going. This strategy is called dollar-cost averaging, and it can be a useful tool in the changing tides of market cycles.

Dollar-cost averaging takes the guesswork out of investing and focuses more on a regular cadence of putting your hard-earned dollars into the market. 

Many people practice dollar-cost averaging but don’t even realize it or haven’t heard of the term in the first place. An example of what could be considered dollar-cost averaging is when employees invest in their 401k with each paycheck. 

Typically, they set a percentage and select one or more investment options tied to their brokerage account through work. Each paycheck, that same percentage goes into the stock market. 

What Are Some Characteristics of Bull Markets and Bear Markets?

The bull and bear market framework is said to date back to the 1700s, to the time of speculation by bearskin trappers of the American frontier. Over time, the characteristics of the animals themselves have been woven into the definition. Raging bulls and hibernating bears represent a metaphor for the cyclical nature of markets — one of the most important and basic concepts to understand about free market economies. 

If you’re trying to remember the meaning of each of these financial terminologies about market conditions, bull market versus bear market, one way to keep them straight is to think of a strong, victorious bull charging and winning. 

On the flip side, think of a slow, sleeping bear sluggish from hibernation. These types of analogies have been used over the years. 

One other analogy that has been used when referring to bull markets vs. bear markets references the physical characteristics of a bull and a bear. Think about the bull’s horns pointing upward, in contrast to the bear’s sharp teeth and claws that both point in a downward direction. 

Should You Invest During a Bull Market or a Bear Market?

Generally speaking, it’s better to buy stocks or other asset classes early during an upward trend, or, ideally, before the asset class or a particular investment takes off. Some investors choose to buy in a bear market, expecting market conditions to turn around — and often, they do. Sometimes, this investment strategy involves patience.

There is no way to predict when any asset class or specific investment, such a stock or a crypto asset will hit rock bottom, before eventually starting to come back up again. This is why knowing and acknowledging your own individual risk tolerance is important. 

How Are Interest Rates Impacted in a Bull or Bear Market?

Although interest rates can’t always be directly correlated to a bull market or a bear market, history has shown that, generally speaking, bull markets accompany lower interest rates. 

The inverse is also true – bear markets typically are associated with higher interest rates. Bear markets make borrowing more expensive. This is driven by the Federal Reserve, as their role is to constantly keep balance, and rebalance for optimal long-term market conditions. 

Why Do Bull Markets Last Longer Than Bear Markets? 

Part of the reason that bull markets last longer than bear markets has to do with the psychology of money and how that’s tied to behavior. People can and do get emotional when it comes to their money. 

Wrapping Up

Both bear and bull markets can greatly influence your investing experience, and it's to your advantage to understand market trends when investing. That said, developing a keen eye for quality projects, companies, and fundamentally sound assets is usually a more viable long-term investment strategy than speculating on ever-changing trends and chasing market cycles. 

The same concepts of bull and bear markets with traditional markets also apply when it comes to crypto investing. This article does not serve as investment advice, but gives you a framework for understanding the basics of a bull and bear market and how market conditions are impacted across several asset classes. 

Using diversification investment strategies and closely considering a mix within asset allocation is a key component of best practices for investing. 

Although there are some drivers with market prices, we can study bull and bear markets, their history, and what triggered them — but we can’t really predict exactly when stock prices or crypto prices will increase or decrease. Learn more about crypto assets and how to invest in them at Cryptopedia.