With the market’s volatility over the past year, now is a good time for AscendEX users to familiarize themselves with the two main types of market cycles, how they are defined and what differentiates them.
A bull market is a market condition when prices are rising or are expected to rise. The term "bull market" is often referred to the stock market but can be applied to any assets traded on an open market, such as bonds, real estate, currencies, and commodities.
Because prices of assets rise and fall essentially continuously during trading, the term "bull market" is typically reserved for extended periods during which a large portion of asset prices are rising. Thus, bull markets can last for months or even years.
Bull markets are characterized by optimism, investor confidence, and expectations that strong results would continue for an extended period. However, it is also difficult to predict consistently with the changing market trend. Part of the difficulty is that psychological effects and speculation may sometimes play a large role in the direction and momentum of the markets, especially when it comes to digital assets markets.
The term bear market refers to a negative trend in the prices of a market. This term is widely used in both cryptocurrency space and traditional financial markets, such as stocks, bonds, real estate, and commodities markets. Generally speaking, a bear market refers to a significant market downtrend with prices falling significantly over a relatively short period of time. When compared to traditional markets, cryptocurrency markets are smaller and thus more volatile. Therefore, it is pretty common to see more substantial and frequent crypto bear markets, where 85% price drops are not that rare.
The recent bear market in digital assets is not the first significant retracement that the market has seen; it is a perfectly normal crypto-economic activity that can facilitate the initiation of a healthy bull market to come.
Bull Vs. Bear
Bull markets are often characterized by rising prices that create a positive market sentiment, and as traders feel more confident, they tend to invest more and more, driving further price increase. Because of this, bull markets tend to be more pronounced and often last longer than bear markets which typically receive less enthusiasm for trading.
Bull and bear markets generally coincide with economic cycles, which typically consist of four phases: expansion, peak, contraction, and trough. The start of a bull market is often a leading indicator of economic growth. Likewise, bear markets usually set in as economic contraction takes hold. These cycles tend to be linked to global economic factors like GDP, money supply, and interest rates in traditional markets.
In comparison, digital asset markets more often take their cues from investors’ sentiment and the underlying commercial value of the technology behind leading assets like BTC and ETH and their use cases. Digital asset markets have historically been volatile but still go through bull and bear market cycles like any other assets. The last significant bull run in digital assets was during the ICO craze in 2017, followed by a multi-year bear market. Earlier this year we experienced a strong bull trend. However, a more bearish cycle has emerged as investors have taken profits with more focus on risk mitigation for heir portfolios. In addition, there has been public uncertainty about digital assets, even with major corporations like Tesla and Grayrock adding digital assets to their balance sheets.
Overall, both types of market cycles are essential to the overall healthiness of asset valuation and the market development as a whole. They allow investors to generate return from economic growth, and keep asset prices from becoming overvalued or undervalued.
Now that AscendEx users are familiar with the types of market cycles in the digital asset space, users can start trading HERE today.