Bearish

What is Bearish?

Bearish refers to a mindset toward cryptocurrency prices. An investor who believes that the price of the crypto market or a particular crypto asset will fall is considered bearish.

The Long Definition

Bearish and bullish are words that describe market trends or investor mentality. A bearish trend is a downward movement in the prices of crypto assets that sees their values fall by more than 20% within two months. The opposite is a bullish trend when prices move up.

A bearish investor, on the other hand, is someone who believes that a particular asset or the entire market will dip. Such an investor is said to be bearish and is referred to as a bear. Bears usually attempt to profit from a market decline.

Understanding bearish trends

In the crypto market, a bearish trend is characterized by declining prices. Specific cryptocurrencies can have their own bear run independently from other assets. But, sometimes the entire market becomes bearish. This occurs when the prices of most cryptocurrencies fall by more than 20% within less than two months.

A bear market is characterized by declining investor confidence. This is because as prices fall, the risk increases, and people become increasingly skeptical about buying crypto assets as an investment.

There is also a significant increase in selling pressure. Scared for the future, holders will attempt to sell their crypto assets en masse. This pushes the prices even further down.

What causes bear markets?

Several factors can trigger a bearish trend. For an individual asset, this can be anything that leads to decreased investor confidence, like internal disputes, hacks, or bankruptcy reports. This is often the case with altcoins.

A market-wide bear run typically occurs due to a combination of several factors. For instance, 2021’s bearish market was influenced by inflated prices in the first half of the year, several hacks that took place in the fall, and questionable business practices by several prominent crypto projects.

Another good example is the crypto winter of 2018. The bear market started due to worries about regulatory crackdowns in Asia and the fact that over 90% of projects launched during the preceding bull run failed within six months. As a result, investors quickly lost confidence in crypto, plunging it into a crypto winter.

This particular bear market occurred after the biggest bull run the crypto market had seen up to that time. It represented the bursting of the crypto bubble.

Understanding bear investors

Cryptocurrencies are volatile assets, making investing all about speculation. The average crypto investor hopes for an increase in prices. So, they tend to buy low intending to sell high.

However, there is a special class of investors, known as bears, who are in it because they believe that the prices will fall. Their goal is to capitalize on bearish trends.

How?

Bears make their money by shorting crypto assets. Shorting involves borrowing an asset, selling it immediately, and waiting for its price to drop. Once that happens, the investor buys the asset (now at a lower price) and uses it to repay their debt. They keep the difference between the selling price and buying price as profit.

A Brief History of Bear Markets

There have been several bear markets since Bitcoin’s launch in 2009. These can be identified by tracking the price of Bitcoin (BTC) since it’s the strongest cryptocurrency.

• Bear Market 2011 to 2012: Bitcoin’s price dropped from $32 to $0.01. This was triggered by a massive sell-off caused by the hacking of major exchanges at the time.
• Bear Market 2013 to 2015: Bitcoin’s price dropped from just over $1000 to around $200. This was caused by the collapse of Mt Gox, China’s crackdown on Bitcoin, and the takedown of Silk Road.
• Bear Market 2017 to 2018: Bitcoin’s price crashed to $3200 from $20,000. It was triggered by a $530 million hack of Coincheck and the failure of many of the projects launched during the previous bull run.
• 2021 to present: Bitcoin plummets from $68,000 to around $20,000. It is caused by a variety of factors. These include the collapse of several big crypto institutions and a faltering global economy.

Are bearish trends common?

In the context of individual cryptocurrencies, bear runs are fairly common. This is especially the case with altcoins. But, speaking of the crypto space as a whole, they don’t occur as often– although their effects stick around for longer. For instance, the crypto winter that started from the 2018 bear market lasted for two years.