Bull Vs. Bear Markets: Riding the Ups and Downs of Investing

Bull Market vs Bear Market: What’s the Difference?

If you've heard people talk about "bull markets" and "bear markets" and felt confused, don't worry, you’re not alone! These terms might sound complicated, but they’re actually quite simple. 

In this blog, we’ll break down what bull and bear markets mean, using easy analogies and examples. By the end, you'll have a clear understanding of these terms and how they relate to the world of cryptocurrency.

What is a Bull Market?

A bull market is an extended period of time where prices of cryptocurrencies are moving up. The term "bull" is used to describe a rising market because of the way a bull attacks. When a bull is aggressive, it thrusts its horns upward, symbolizing an upward motion. This upward thrust is a perfect metaphor for the rising prices and optimism seen during a bull market.

So, does this mean in a bull market, prices are always going up every single day? No, in a bull market, prices are generally rising, but that doesn’t mean they go up every single day. There are still some dips or small pullbacks in prices. 

However, these downward movements are temporary, and prices tend to recover quickly. Over time, the upward momentum is much stronger than the occasional downward swings, so the overall trend is a significant rise in prices.

Simple Analogy to Understand a Bull Market

Imagine you are hiking up a hill. Sometimes, you might stumble or stop for a quick break, but overall, you’re still climbing higher. Each step forward brings you closer to the top. In a bull market, the prices might dip temporarily, but the general direction is still upward just like your climb continues upward despite a few small stumbles along the way.

Time Durations of Bull markets and Examples

The average time duration of a Bull Market is 1 to 2 years. This is just the average time. Individual Bull run time periods can be shorter or longer than that. Bull market and bull run means the same thing. So don’t get confused.

Let’s look into major Bull markets in crypto history:

2011 Bull Market: This early bull run saw Bitcoin's price rise from around $1 to over $30 in a span of about six months. While short, it was the first major price rally in Bitcoin's history.

2013 Bull Market: Bitcoin experienced two bull markets this year. The first one took place early in the year, lasting about six months from January to June. where Bitcoin surged from around $13 to $266. 

The second bull run occurred from October to November, lasting about two months but with a much sharper rise, pushing Bitcoin’s price over $1,000 for the first time.

2017 Bull Market: One of the most well-known bull markets in crypto, this lasted for about 12 to 18 months. Bitcoin surged from $1,000 at the start of the year to nearly $20,000 by December 2017, and many altcoins followed this growth.

2020–2021 Bull Market: This bull market began around March 2020, following the market crash due to the COVID-19 pandemic, and extended into 2021. Bitcoin’s price rose from around $4,000 to over $60,000 during this period. This bull market lasted roughly 18 to 24 months.

 

What causes a Bull Market?

There can be several reasons behind a bull market. But the interesting point is that no one can exactly time the market, no billionaire, millionaire or the most sophisticated investors are able to say the exact date that a bull market starts but they can give a prediction about the start of a bull market based on several factors. 

Let’s see the major reasons behind a Crypto bull market. I’m not going into so much detail about the technical and fundamental things to keep everything simple.

Factors Driving a Crypto Bull Market

      1. Bitcoin Halving: Bitcoin halving is an event which happens once in every four years. We know that miners are responsible for recording and validating transactions on the bitcoin blockchain. For this they get bitcoin as a reward.    

      But the thing is bitcoin blockchain was created to cut the reward in half once in every four years. This reduces the supply of bitcoin in the market, so if demand stays the same or increases, the price of bitcoin starts to increase.  

Think of it like a bakery that produces a limited number of cookies each day. If the bakery suddenly decides to make half as many cookies, but people still want the same amount, the bakery owner can increase the price and sell the remaining cookies only to the people who can afford it.

2. Low Interest Rates: Low interest rates make borrowing very cheap for businesses and individuals, when borrowing is cheap businesses tend to obtain more loans for expansion. This expansion results in more employment. 

      More employment means more people having money to spend, so there will be more money circulating in an economy, part of that money will eventually fall into high-risk high reward assets like crypto driving the prices of cryptocurrencies much higher. 

      Low interest rates also means that low returns on traditional investments like saving money in the bank. This also encourages people to seek high return investments like crypto.

 

      3. Increasing Global M2 Money Supply: Global M2 money supply refers to the total amount of money circulating in the global financial system. It is primarily calculated by considering the money supply from the world’s major economies, particularly the central banks of the USA, Europe, Japan, and China. 

      Since these major economies are interconnected, their monetary policies often follow similar patterns. As a result, there are periods when the global money supply increases or decreases together due to various economic factors.    

      When global m2 money supply increases economies usually thrive and so do investments. Let’s see an analogy to better understand the positive relationship between Global M2 money supply and crypto.

Imagine a large garden where plants represent various investments in the economy, and the water that nourishes them symbolizes the global M2 money supply. When there’s plenty of water (an increase in the money supply), the plants thrive, just like investments in assets, including cryptocurrencies, do well when there’s more money available. 

With more water, the plants grow stronger, just as investors have more funds to put into the markets. In the case of a crypto bull run, it is historically observed that such a bull market often occurs when the global M2 money supply begins to increase.

4. Global Adoption: Global adoption refers to the widespread use and acceptance of cryptocurrencies like Bitcoin across different countries, industries, and individuals. As more people and institutions embrace crypto for payments, investments, or financial services, it drives demand and increases its value. Let me give you a few recent updates regarding the widespread adoption of crypto in 2024.

• Bitcoin ETFs (January 2024) - In January 2024, the U.S. Securities and Exchange Commission (SEC) approved several spot Bitcoin Exchange-Traded Funds (ETFs). The major institutions that applied for this approval include prominent asset managers like BlackRock, Fidelity, ARK Invest, Invesco, and Grayscale.
  
  
• Torrevieja (February 2024) - Torrevieja, Spain, aims to be Europe's first crypto-friendly city by enabling local businesses to accept cryptocurrencies as of February 2024. This initiative is a collaboration between the local government and the Association of Small and Medium Merchants to digitize commerce using blockchain technology.
  
  
•  PayPal (September 2024) - PayPal announced it is enabling U.S. merchants to buy, hold, and sell cryptocurrency directly from their PayPal business accounts.

 

For a bull market to happen, several important factors usually need to come together. As we enter Q4 in 2024, there are strong signs that a big bull run may be starting. This is because global liquidity is increasing as major economies lower interest rates and change their monetary policies to put more money into the economy. 

We also had the Bitcoin halving in April 2024, which can lead to higher prices. Plus, the fast global adoption of cryptocurrency and blockchain technology is growing, adding to the reasons for a possible bullish trend.

What is a Bear Market?

Bear market is the opposite of a bull market. In a bear market, prices of cryptocurrencies are going down for an extended period. The term “bear” comes from the way the bear attacks, when a bear attacks, it swipes its paws downward. 

Similarly, in a bear market, prices of assets like stocks or cryptocurrencies are falling or are expected to fall, which reflects that downward movement. But this does not mean that prices will go down every single day. There will be brief increases in prices, but the overall trend will be downwards.

 

Simple Analogy to Understand a Bear Market 

A bear market is like a person walking downhill. As they walk down, they may occasionally find small patches of flat ground or even slight uphill sections, but overall, they are still heading down. Even if they stop and rest for a moment on a flat area, they eventually continue their downward journey. Similarly, in a bear market, prices might briefly rise, but the overall trend is still downward.

Time Durations of Bear Markets and Examples

2011 Bear Market: After the initial surge in 2011, Bitcoin’s price fell from over $30 to around $2 by the end of the year, marking a decline of about 93%. This bear market lasted for roughly 5 months.

2013 Bear Market: Following the two bull runs in 2013, Bitcoin’s price plummeted from over $1,000 in late November to around $200 by early 2015. This bear market extended for approximately 13 months.

2018 Bear Market: This bear market began in early 2018 after the peak of nearly $20,000 in December 2017. Bitcoin’s price dropped to about $3,200 by December 2018, marking a decline of over 84%. This bear market lasted roughly 12 months.

2022 Bear Market: Beginning in early 2022, following the highs of late 2021, Bitcoin’s price fell from around $68,000 in November 2021 to approximately $20,000 by the end of 2022. This bear market lasted for about 12 months, with many altcoins experiencing similar declines.

 

What causes a Bear Market?

In the world of investments, everything goes through cycles. Just as the seasons change from spring to summer, then to autumn, and finally to winter, financial markets also experience ups and downs. 

A bear market is just one of these phases; it doesn't mean the end for cryptocurrencies. It's a normal part of the market's life cycle. Understanding that these changes are cyclical can help investors see that a bear market is inevitable. In this blog, we'll look at the main reasons behind bear markets.

 

Factors Driving a Crypto Bear Market

1. High Interest Rates: When banks raise interest rates, businesses face higher costs for repaying loans. To manage these costs, companies may lay off staff, leading to higher unemployment. Increased interest rates also make borrowing more expensive, so fewer people take out loans.

Further high interest rates make traditional investments like saving money in the bank more attractive, so people tend save their money in banks for a good return. All of this results in less money circulating in the economy, which reduces demand for goods, services, and also investments in cryptocurrencies.

2. Decreasing Global M2 Money Supply: When governments want to cool down overheating economies and control rising inflation, they take actions to reduce the money in circulation.

This results in less money flowing through the global economy, especially when major countries take similar steps. As a result, there’s less money available for high-risk, high-reward assets like cryptocurrency.

      3. Negative Market Sentiment: This can happen for many reasons, such as actual events like large-scale hacks or crypto scams, as well as media coverage that can sometimes exaggerate issues like environmental impact or criminal use.

Government regulations or outright bans on cryptocurrencies also contribute to panic selling and reduced investor confidence in the crypto market. Let me give you very few real-world examples about the dark side of crypto as well.

• FTX Collapse (2022) – One of the largest crypto exchanges, FTX, collapsed due to fraud and mismanagement. Its founder, Sam Bankman-Fried, was arrested and faced multiple charges of fraud. FTX’s failure wiped out billions of dollars in investor funds and sent shockwaves through the crypto industry, prompting regulatory crackdowns  
  
  
• Mt. Gox Hack (2014) – Mt. Gox, which was once the largest Bitcoin exchange, was hacked, leading to the loss of 850,000 Bitcoins (worth around $450 million at the time). This hack remains one of the largest in cryptocurrency history and caused a significant loss of trust in crypto exchanges.
  
  
•  Rug Pulls: Many decentralized finance (DeFi) projects have experienced "rug pulls," where developers create a project, attract investments, and then withdraw all funds, leaving investors with worthless tokens. Examples include the SushiSwap and Compounder Finance scams, which resulted in losses of millions for investors.

 

Nice! It's clear to you that the risks in the cryptocurrency world are significant, but so are the potential rewards. In my upcoming blogs I will also cover the common scams currently affecting the cryptocurrency space and provide tips on how to avoid them. The more you learn, the better informed you will be, enabling you to make the right decisions on your path to financial freedom.

 

Final Thoughts

In the cryptocurrency market, we frequently experience both bull and bear markets, and this cyclical behavior is entirely normal. Since no one can precisely time the market meaning that no one can say exactly when a bull run will start or end, or when a bear market will begin or conclude, we must stay informed about what’s happening in this space.

Don’t worry; you don’t need to be a genius or a top analyst to invest successfully in this field. I will provide the necessary guidance throughout my blogs. “Sometimes, knowing a little but knowing it very well is more than enough to navigate the market effectively.”

If you find this information valuable, please share this blog with your friends and family! Together, we can help each other on the journey to financial freedom!

Disclaimer: The contents of this article are for informational purposes only and are not financial advice. The views here are just the author’s opinions. The crypto market is volatile, so be sure to do your own research before investing.