The term “bull market” is believed to have originated from the bull’s fighting style, wherein it attacks its opponents with its horns in an upward motion. Today, the term bull market, or bull run, refers to a positive trend in the prices of any market, whether it is cryptocurrency, stocks, real estate, or any other asset. Simply, a bull market describes the rising market representing meaningful appreciation of prices over a short period of time.
Unlike traditional markets, the market for cryptocurrencies is relatively smaller and consequently volatile, which is why it is common to see strong yet consistent bull runs, where a 40% increase in the market in a span of two (2) days is considered normal. Around this period, crypto investors are buying assets, demand is greater than the supply, market confidence is high, and a sustained increase in asset prices is evident.
The Cause of Crypto Bull Market
A bull run or bull market usually begins when crypto investors believe that prices will increase and remain high — in short, it is the investors who will start the bull run. They do this by buying stocks at a relatively low price and start being optimistic about their return on investment (ROI). The more optimistic investors there are in the market, the faster the market will rise, likewise causing prices or assets to soar high.
For traditional finance markets, factors like strong gross domestic product (GDP) and low unemployment rate can cause a bull market to emerge as these factors are considered favorable market conditions causing an increase in investors’ confidence. The cryptocurrency bull markets, even though digital, are also influenced by the traditional market’s condition.
Crypto markets are new to the finance world and have fewer total investors compared to traditional markets that have been around for over hundreds of years. With this underlying factors, plus the market being fully digital, crypto bull runs can also be started by things like:
- Mainstream and pop culture support
The 2017 bull runs were heavily influenced by celebrities who started investing in the crypto market attracting more potential investors. - Institutions exploring the crypto market
A good example is MicroStrategy’s $650M Bitcoin (BTC) investment (over 70,000 BTC). - Optimism from established traditional finance markets
JPMorgan strategists said Bitcoin could rally to as high as $146,000 long term as it competes with gold. - Global events affecting traditional finance markets
The COVID-19 pandemic became the perfect opportunity for more people to explore cryptocurrencies amidst the economic crisis on traditional financial markets caused by the global pandemic.
You Know It’s The Crypto Bull Market When…
Aside from the sustained rise of asset prices, the crypto bull markets is also characterized by economic conditions and market views with signs showing that:
- There is strong demand
An increase in the demand for an asset with limited supply causes a steady rise as supply weakens. - There is confidence amongst market participants
The number of buyers increases when participants are generally positive. A sustained market ultimately makes the market bullish and keeps prices healthy. - There is strong and positive media presence
Constant news and positive headlines about cryptocurrency in mainstream and online media increase awareness and adoption of crypto assets and attract more buyers. - There are improved economic conditions
The crypto market has become a failsafe for many people across the world. In situations where a nation’s economy is struggling or shows signs of a crash, many people hedge their funds by buying cryptocurrencies through a centralized exchange or decentralized exchange.
The Cycle of Bear and Bull Markets
In our recent article about the Crypto Bear Market, we’ve discussed how to spot the bear market and how to thrive with it. (If you haven’t checked that out yet, just click here.)
As of this writing, the crypto market is currently at a bear market. But if you know the basics of finance, you know that every time it drops, it will eventually rise. Financial experts suggest four phases in the cycle of any asset in a bull or bear market. These are:
- Accumulation: Early adopters buy an asset at very low prices.
- Markup: The media’s outlook on an asset becomes favorable and influences more buyers to enter the market.
- Distribution: Traders begin to close out major trading positions. During the distribution phase, buyers and sellers struggle to increase or reduce prices.
- Markdown: Prices fall significantly. The asset may then return to the accumulation phase, and the cycle begins again.
Many factors drive the bull and bear crypto markets. Unlike the traditional finance market, the cryptocurrency market has fewer market participants and is more volatile. Therefore, people interested in trading may consider learning the fundamentals of both market conditions, in addition to understanding crypto trading signals and relying on technical analysis.
