Bull and Bear Markets
Recognizing if the crypto trading markets are in bull or bear territory will help you decide whether a losing crypto should be sold, held, or bought. In case you aren’t familiar with these terms, I’ll define them before we continue.
What is a Bull Market?
A crypto bull market is defined as a prolonged period of price increases accompanied by positive investor sentiment. A bull market will experience price increase of 80% or more since the last bear market bottom. Here’s a tip.
Bitcoin halving occurs every four years. It means the amount of bitcoin awarded to transaction miners is reduced by half every 4 years, until all 21 million bitcoin have been virtually mined (probably around the year 2140). To find out when the next potential bull market will happen, find out when the next halving is scheduled. Go to this website for a countdown timer to the next halving event. https://coinmarketcap.com/halving/bitcoin/
You might wonder why the 4-year halving event tends to create bull markets. The reason has to do with reduced supply. The current bitcoin block reward for mining is 6.25 bitcoins. At the next halving event it will drop to 3.125 bitcoins per block reward. With a reduced supply and increased demand worldwide, the price of bitcoin tends to go up.
What is a Bear Market?
A bear market is the opposite of a bull market. A crypto bear market is defined by a prolonged period of falling prices accompanied by negative market sentiment. Meaning people don’t believe in crypto and think prices will continue to fall. A crypto bear market will experience price decreases of 80% or more.
How to Decide if a Losing Trade is Bad
If you purchased a crypto in the middle of a bear market cycle, then most likely the price will keep going down. However, we don’t usually know for sure were in a downtrend until it plays out for a period of time. It’s not reasonable to think you’ll time the bottom of a bear market for all your crypto purchases. So, what do you do if your trade starts to go south? Consider this.
- How much do you like the project behind the crypto you purchased?
- Has the project had much positive activity?
- Does the community believe in the crypto?
If you really believe in the project, then when the price goes down buy some more. Keep in mind, I never recommend putting all your cash into the market all at once. I always recommend first spending half of what you want to spend. Then if prices drop and you like your cryptocoin, then you have money available to buy more.
If after you made your initial purchase your researched has led you to believe your choice might not have been as sound as you first thought, then sell it before the price drops by an amount that makes you uncomfortable. Maybe 10-15%. This way you minimize your loss.
If you like the project, but don’t have any more money to spend, then hold the crypto you have and wait out the bear market.
Bitcoin Market Cycles
The cycle chart below came from a CryptoPotato article. To get more in-depth understanding of market cycles read this article. https://cryptopotato.com/what-are-crypto-market-cycles
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