What do the terms “bearish” and “bullish” mean in the cryptocurrency world?
Simply put, bearish refers to market pessimism and price declines.
Bullish refers to market optimism and price inclines.
Why ‘Bear’ and ‘Bull’?
Actually, the origin of the terms ‘bearish’ and ‘bullish’ are unknown. However, it is believed that these terms originate from the way that bears and bulls attack. Bears usually swing their paws downward when attacking another animal.
Hence, bearish as a term is used for a downsloping curve. Bulls, on the other hand, attack another animal by swinging their horns upwards. Hence, bullish refers to an upsloping curve.
Bearish Market
As mentioned, a bearish market is categorized with declining prices of cryptocurrencies and buyer pessimism. When the price of a cryptocurrency reaches its peak (new highs), investors are inclined to sell cryptocurrencies they own to make a profit. Once everyone starts selling their cryptocurrencies, the price gradually starts going down, and most investors will be keen to sell their cryptocurrencies even faster.
Since more cryptocurrencies are sold, supply increases and exceeds demand, which in return causes a surplus. Whenever there is a surplus, the price goes down to reach new market equilibrium.
All this tendency to sell cryptocurrencies because of the fear that the price will go down, which as a result actually decreases the price of that cryptocurrency, is known as a bearish market.
Bearish markets occur after a bull run and are usually a 20% price decline, which is then followed by another bull run.
Buying Cryptocurrencies In a Bearish Market
If you invest while on the bearish run, you do not need to panic. Even though the likelihood is that the price of the cryptocurrencies you purchase may go down, the possibility that it will go up again also exists. So even if you purchase at the wrong time, perhaps you can profit in the long run.
After Bitcoin’s bull run in 2017 where the price went close to $20,000, its price drastically decreased. However, as of April 2021, Bitcoin’s price is around $60,000, which is almost three times the value of its price by the end of 2017. So even if you had invested when the price was at its highest in 2017, which was then followed by a bearish market, you would have made a profit in the long run.
Bullish Market
As the opposite of a bearish market, a bullish market is categorized with inclining prices of cryptocurrencies and buyer optimism.
When after a bearish run, the price of a cryptocurrency reaches new lows, investors are encouraged to buy cryptocurrencies because of the new potential to increase in price. When everyone starts buying cryptocurrencies after a bearish run, the price starts going up, and more investors will seek to buy those cryptocurrencies because of the fear of missing out on potential profits.
When more of these cryptocurrencies are purchased, supply decreases and demand exceeds supply, which causes a shortage. Whenever there is a shortage, the price goes up to reach the new equilibrium.
This run of purchasing cryptocurrencies because of the fear of missing out (FOMO) on potential price increases, which as a consequence increases the price of those cryptocurrencies, is known as a bullish market.
Bullish markets occur after a bearish run and are usually around a 20% price increase, followed by a bearish run again.
Takeaways
- Bearish refers to market pessimism and price declines.
- Bullish refers to market optimism and price inclines.
- Bearish markets occur after a bull run and are usually a 20% price decline, which is then followed by another bull run.
- Bullish markets occur after a bull run and are usually around a 20% price increase, followed by a bearish run again.