Bear Market and Bull Market

Everyone has encountered terms like bear market or bull market in their adult life. We often hear these terms on TV, radio, the internet, or in conversations between people. These are fundamental terms in the world of finance and investing. In short, a bear market occurs when the prices of stocks, bonds, and other assets are declining over an extended period. On the other hand, a bull market occurs when prices are rising steadily.

However, the movement of prices is influenced by many factors, such as market sentiment, inflation, global political situations, environmental factors, or other macroeconomic situations. For this reason, it is not always clear to identify which animal dominates the market. However, it is a completely natural phenomenon that appears in financial markets in so-called cycles, and investors must be prepared for these periods. In our article, we will show you how to identify a bear market and a bull market, but most importantly, we will show you how you should behave in both market conditions.

In this article, you will learn:

• How bear markets and bull markets originated
• Bear market
• Bear market vs correction
• What is characteristic of a bear market
• Why does a bear market occur
• How to invest in a bear market
• Bull market
• What is characteristic of a bull market
• How a bull market occurs
• How to invest in a bull market

How Bear Markets and Bull Markets Originated

Many people ask themselves why, out of the entire animal kingdom, bears were chosen to symbolize a declining trend and falling prices in the markets. On the other hand, bulls represent a positive mood and rising prices in the stock market.

There are many historical theories behind the choice of bears and bulls, but the most popular explanation is based on the way these animals attack. Bears, who strike their prey from above and swipe their paws down to the ground, symbolize a downward trend and falling prices, i.e., a bear market. On the other hand, bulls attack upwards with their horns, which is reflected in the market as rising value of the asset over the long term, i.e., a bull market.

Bear Market

A bear market (bear market) can be defined as a long-term decline in the prices of assets, primarily stocks and cryptocurrencies, lasting several months, and in extreme cases, it can last for years. In some cases, especially at the beginning of a bear market, it is not easy to determine whether it is the start of a bear market or just a correction. However, in general, we can start talking about a bear market when prices fall by 20% or more compared to the previous high. In the case of cryptocurrencies, this percentage may be higher because cryptocurrencies tend to have higher volatility.

Bear Market vs Correction

Stock markets or cryptocurrency prices do not rise or fall in a straight line, but their prices move in so-called waves. This means that the price of an asset reaches a certain peak value and then drops, only to break that peak in the following days/weeks/months. For example, the price of Bitcoin was $73,550 on October 29, 2024, and a few days later (November 4), the price dropped to $66,800. Then, on November 6, the previous peak was surpassed, and a new all-time high was set. Even though this drop over a few days may seem alarming, we cannot say that it marks the beginning of a bear market, but rather it is just a market correction, which is a natural occurrence. Therefore, when investing in cryptocurrencies, it’s essential to distinguish between a correction and the natural volatility in the market, and when a bear market actually begins. According to an article from Morningstar, a market correction can be defined as a 10-20% drop in the price of an asset. We can start talking about a bear market when the price of an asset falls by more than 20%.

What is characteristic of a bear market

Negative market sentiment – During a bear market, negative sentiment prevails, and most traders expect the price of an asset, such as Bitcoin, Ethereum, or Cardano, to decline in the long term. Traders and investors can monitor this sentiment through the fear and greed index.

Lack of trust in a specific asset – The long-term and sometimes aggressive decline in the price of specific assets in a bear market can affect investors’ confidence. They subsequently sell their assets at a significant loss. This behavior is especially common among novice investors who lack experience with bear markets and, under emotional pressure, lose their money. A typical example is the end of the bull market in November 2021, when Bitcoin reached its peak around $68,000 and then fell by more than 77% to around $15,000. During this time, many traders lost their money due to emotional pressure and the sale of their assets below the purchase price.

Allocating money to more conservative investments – Many traders and investors move their investment resources into more conservative products, such as government bonds, gold, or keep their money in cash during a bear market. This is, however, the wrong approach because a bear market is an ideal environment for accumulating investments, as you can purchase assets at low prices.

Why Does a Bear Market Occur?

In economics and finance, not everything is clear, so there is no exact answer to this question. However, in most cases, it is a combination of economic, financial, and psychological factors that lead to a long-term decline in asset prices and negative sentiment in the markets.

The most common reasons for the onset of a bear market include:

Global Crisis – A common reason for a bear market is the onset of an economic crisis, which negatively impacts stock or cryptocurrency markets. Some of the most well-known global crises according to WorldFinance include the Wall Street Crash, the Dot-com Bubble, the Oil Crisis, and Black Friday.

Geopolitical Events – Political and, especially, geopolitical situations and sentiment directly impact the price of individual assets or currencies. For example, the start of the war in Ukraine and the subsequent sanctions against Russia caused the Russian ruble’s value to drop by more than 50% in just a few months.

Economic Factors – A decline in GDP, high unemployment, lower consumer activity, rising interest rates, and other economic indicators directly affect the prices of specific assets. In general, when the economy is struggling, people invest less or withdraw money from their investment assets.

Natural Disasters – Just like geopolitical events, natural disasters that occur in one part of the world can have a huge impact on the entire sector. This negative event also reflects in asset prices on the stock market. For example, the climate crisis that caused drought in West Africa led to an 11% decrease in cocoa production during the 2023/2024 season, which consequently pushed the price to a historical high of nearly $10,000 per metric ton.

How to Invest in a Bear Market

Don’t Sell at a Loss – You should follow the golden rule of investing: Only invest money you don’t need. If you follow this rule, a bear market is the perfect opportunity to buy stocks or cryptocurrencies at lower prices. For example, if you had bought Bitcoin during the bear market for approximately $20,000 in January 2023, your investment would have increased by 370% in November 2024. For a better understanding, if you had purchased Bitcoin for 1,000 € at that time, your investment would now be worth around 4,700 €.

Use the DCA Strategy (Dollar Cost Average) – This is a passive investment style where, at the beginning of your investment plan, you define the amount you will invest weekly/monthly/quarterly into selected assets. This strategy is popular among both new and experienced investors because you buy selected stocks, ETFs, or cryptocurrencies when prices rise and fall. Over a long-term horizon of 5 years or more, this is one of the most profitable investment strategies. For example, at the start of your investment plan, you decide to send 100 € every month from your paycheck to an indexed cryptocurrency portfolio. You will repeat this step every month, regardless of whether the selected cryptocurrencies are declining or rising in value.

Invest Unnecessary Money – A bear market is a great opportunity to invest unnecessary money that is just sitting in your regular bank account. In a bear market, many stocks, ETFs, and cryptocurrencies are undervalued and are considered “sales.” However, you should be careful to invest only in assets that have a future, so you don’t lose your hard-earned money. If you’re unsure where to invest your money, we are happy to help you at Fumbi.

Bull Market

A bull market (bull market) can generally be defined as a long-term increase in the price of a specific asset, which lasts for several months, sometimes even years. We can talk about a bull market when the price of the asset has increased by at least 20% from the previous low. In the world of finance and investing, historical data shows that bull markets are generally stronger and longer than their counterparts, bear markets. According to statistics from 2024 by the investment company Vanguard, the average duration of a bear market is approximately 1 year and 2 months. On the other hand, the average duration of a bull market is 6 years and 1 month. From this statistic, we can also deduce that every bull market has been at least twice as strong as a bear market.

Statistics of Bull and Bear Markets

Source

What is characteristic of a bull market

Economic stability and growth – Bull markets are often associated with a positive economic situation, low unemployment, and favorable macroeconomic factors. Essentially, in most cases, when the global economy is doing well, so are the stock or cryptocurrency markets.

Positive market sentiment and investor confidence – During a bull market, we can observe positive forecasts from experts, analysts, and overall confidence from investors in their investment assets. We can also identify positive numbers in market sentiment. Additionally, demand for riskier forms of investment and speculation on price movements increases.

High trading activity – During a bull market, more trades are conducted daily on exchanges than during a bear market. Investors and traders allocate a larger portion of their money into assets with the expectation of making profits.

Influx of new investors – During a bull market, a large number of new, novice investors enter the market. News of assets breaking historical highs spreads through the media, magazines, social networks, and among people. This phenomenon attracts many new investors who believe they can make “easy money” on the market. A typical example can be seen at the end of 2020 and the beginning of 2021, when Bitcoin was in a strong bull market, and news of its rise were featured in every media outlet. At that time, a huge number of new, inexperienced investors poured into the market, putting a large portion of their wealth into Bitcoin with the expectation of big profits.

How a Bull Market Occurs

Just like the creation of a bear market, the emergence of a bull market is not due to a single factor, but rather a combination of various economic, financial, psychological, and market factors.

The most common reasons for the start of a bull market include:

Recovery after a crisis – A bull market often arises after a period of recession or a bear market, when the economy begins to recover. Stocks, ETFs, and cryptocurrencies have hit their bottom and minimums, and investors come back to the market with new investments.

Discovery of new technologies or trends – Technologies that have a global impact on society drive a bull market. Companies or cryptocurrencies based on these new innovations achieve the best results on the market. An example is the current boom around AI, where according to statistics from the IMF, AI-powered ETFs outperform those that do not use AI by a factor of 11.62.

Improvement in the business environment – Businesses are the driving force behind the entire economy. Reforms, lower interest rates, taxes, and optimizations that lead to improvements in the business environment have a positive impact on companies’ operations. They can then invest more in development, innovations, employees, and other factors that help them achieve desired results.

Positive expectations – Positive news and market forecasts from reputable experts, media, or institutions increase traders’ and investors’ confidence in specific investment assets. They are then more willing to enter the market and invest their money in selected stocks, ETFs, or cryptocurrencies, which increases capitalization and, in turn, the overall price.

How to Invest in a Bull Market

Invest with a Cool Head – When investing, you should keep in mind that markets do not move only upward and a bull market does not last forever. Many inexperienced investors enter the market during a bull market and have the illusion of “quick and easy” profits, often investing money they need for everyday expenses. In worse cases, they borrow money under unfavorable conditions. Such behavior is very irresponsible, and every investor should remember that they must invest only money they do not need, and that if a loss occurs, it will not ruin them. Otherwise, you may end up buying at the peak of the bull market and selling your investments in panic at a loss.

Use the DCA Strategy (Dollar Cost Average) – Just like in a bear market, you should also use the DCA strategy in a bull market and buy regularly throughout the duration of the bull market.

Beware of Scammers – During a bull market, many unreliable projects or “experts” emerge, promising guaranteed (often unrealistic and exaggerated) profits. Therefore, you should verify your business partner before investing, to ensure they are legitimate and trustworthy. Our FUMBI team consists of verified and reliable cryptocurrency experts, and your money is safe with us. You can see us at various professional conferences, in the media, or at lectures. Our vision is to bring cryptocurrencies to people and help them invest their money in verified projects that have a future.

Diversify Your Investment Portfolio – If you want to start investing in cryptocurrencies, you should think about diversifying your portfolio when making purchases. Diversification is the process of selecting several cryptocurrencies in addition to one, into which you will invest your money in percentage shares. This ensures that if one cryptocurrency underperforms, others will drive the portfolio upwards. In our Fumbi Index Portfolio product, we have methodically selected several cryptocurrencies that have a future, so you will be investing in a wide range of projects, not just one.

What to invest in and how with Fumbi

Fumbi offers the opportunity to invest in portfolio products as well as individual cryptocurrencies. It all depends on you and your preferences, whether you want to invest only in Bitcoin or balance it with other cryptocurrencies.

If you’re interested in cryptocurrencies and would like to invest in them, Fumbi could be the right solution for you. Investing is accessible to practically anyone, and you can start investing in cryptocurrencies through Fumbi with as little as €50, all with just a few clicks.

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