Worldwide, cryptocurrency trading is picking up steam. Due to its extreme price fluctuation when any connected component experiences even a small shift, crypto assets have been in a constant state of struggle. A bear market in cryptocurrencies was thusly defined.
Since bitcoin as a whole is still relatively unfamiliar to the general public, the many associated terminologies and jargons might be difficult to grasp. To help people, especially newcomers to the cryptocurrency market, this article provides a thorough introduction to the key concepts and words that make up the bear market.
What is Crypto Bear Market
The term “crypto bear market” is used to describe a situation in the financial markets where the value of the most prominent cryptocurrencies is consistently falling. It’s possible, for instance, that Bitcoin’s value will drop by 20% from its current level and keep going lower. The bear market in cryptocurrencies has resulted in a lack of trading jobs. As a result, business slows down.
Weak economic policies, the rapid bursting of market bubbles, a geopolitical conflict in the region, or even unanticipated natural calamities could all contribute to these dire economic situations. This economic scenario has a domino effect on the ongoing trading of other assets and establishes a downward trend for investors. Many investors and traders lose faith and optimism during a down market.
Any bad news is enough to send stock values plummeting. Because of the fear that further market drops may result in even greater losses, traders cease trading. There is no stopping this downward spiral, and now investors are bracing themselves for even worse market conditions.
However, investors and traders can take advantage of the bear market by purchasing cryptocurrency at discounted prices. The end of the bear market, however, is impossible to pinpoint with any certainty. As a result, investors worry about whether or not their investments will recover their previous value.
Many investors and traders instantly cease all trading activity and sell off their holdings as a result of the ensuing panic. Time allows the bear market to acquire steam, and eventually economic activity returns to normal. To make up for their financial losses, the traders gradually regain their self-assurance and start investing again. Now another crypto bull cycle has begun.
Crypto Bear Market Causes
A bear market in cryptocurrencies starts whenever market prices start to drop. When prices keep going down, buyers and sellers alike may begin to fear that the slide will continue. As a result, they become less willing to put money into the market, which further dampens economic activity.
When a natural disaster, pandemic, war, or even a geopolitical crisis occurs, it serves as an early warning signal for the start of a bear market. The result is a slowing economy. Crypto bear market factors include government laws and restrictions imposed on local firms and government officials’ interference in market activity.
If the stock market were falling, the patterns might be foreseen simply by professionals and specialists. Since the cryptocurrency market is still a relatively new idea, it is difficult to anticipate whether or not the bear market will follow the trends of the past.
Bear market indicators for beginning
While there is no single explanation for a market downturn, there are a few reliable markers that might help you anticipate the beginning of a bear market.
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Extreme Pessimism
The situation arises when authorities at the highest levels begin labeling the cryptocurrency market and trade as fraudulent. Because of this, investors’ trust plummets and the market crashes.
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Trading Volume Decreases
People quit putting money into the market because of all the uncertainty and volatility. As a result, business activity drops and the market drops with it.
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Backwardation
Continual decline in the price of an asset is a signal that its future value will be less than its current value. Because of this, economic activity has slowed down.
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Death Cross
If this continues, it will be a technical indicator of the beginning of a bear market. The asset’s 50-day moving average has just crossed above its 200-day moving average, which is related to this phenomenon.
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Federal Interest Rate Fluctuations
In a day, the reserve rates at which banks borrow assets could drastically shift.
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Powers That Be Stepping In
Also telling is the extent to which government bureaucrats and regulators try to muscle in and impose rules that don’t really make any sense. When government officials add complexity to the situation, it creates a barrier for crypto activity. As a result, a lot of business deals have to be made face-to-face, which slows down the economy.
What are the Distinct Characteristics of a Bear Market?
- Assets are more readily available than they are sought after.
- Over time, the price of the goods continues to drop.
- The general public becomes negative about cryptocurrency and related assets.
- In other words, the traders and investors lose interest and stop putting money into crypto.
- Experts and researchers have lost all optimism for the cryptocurrency sector.
- The euphoria felt in the face of good news is usually fleeting and quite mild.
Strategy to Invest in a Bear Market
Putting money into cryptocurrencies during the current bear market is a high-risk endeavor. Investors’ faith in the assets has eroded, and commodity prices remain low. Investors consider both the current price and the potential future price growth that may quadruple their profits. This motivates people to stock up on crypto assets during the market downturn and cash out during the subsequent bull run.
Some investors adopt the strategy, liquidating their crypto holdings at the first sign of a market downturn. After a full-fledged bear market has occurred, they will once again make purchases of such assets at significantly reduced prices.
Due to the unpredictability of the crypto market, the length of the current bear market is impossible to estimate. This time may persist longer than expected, and prices may keep falling, in the event of natural disasters or a prolonged economic downturn. For this reason, one must act amid substantial ambiguity. Buying an asset at that time could result in a profit, but it could also result in a loss if prices fall any more.
Bear Market Terminology: What You Need to Know
Following is a brief discussion of some of the more important ideas and jargon you’ll need to know as the cryptocurrency market continues to plummet.
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Phasing In: The Accumulation Stage
As a group, traders and investors are actively purchasing assets at depressed prices during this phase of the bear market, which is known as the accumulation phase. As the market enters the accumulation phase, prices begin to rise once more. Traders should take this as a signal that the bull market is on its way back.
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Altcoins
Similar to Bitcoin, but different. Actually, the motivation behind the development of this cryptocurrency was to enhance the functionality of the bitcoin network as it currently stands. The development of altcoins began with the intention of bettering bitcoin by using a new and different model.
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Bear Market
The term “bear market” is used to describe a prolonged period of falling stock values. The value of crypto assets keeps dropping, and it’s been happening for a while now. For cryptocurrency traders and investors, this is a time of despair and pessimism.
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Bull Market
When asset prices are steadily going up, that’s called a bull market. Traders are putting more and more money into these types of markets. The economy is booming and making a lot of money. Bull markets are synonymous with times of optimism and hope.
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Bearish
A negative market exists when asset prices in any cryptocurrency market are consistently falling.
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Bullish
The market is considered to be bullish if and only if the values of crypto assets and currencies start to go up.
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Indications of Strength
The time of association and consolidation arrives when the prices of crypto assets continue to fall for an extended period of time. This might occur anywhere between the 50-day and 200-day moving average. The beginning of a new bull market has arrived.
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Bag Holder
One who purchases a cryptocurrency at an extremely inflated price is called a “bag holder.” The asset’s value drops precipitously as a result of market fluctuations. The owner of the currency is then left holding a useless piece of paper. So it’s likened to a bag that has no contents since that’s all it looks like when it’s empty. Bag holders are what they are called.
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Bubble
A bubble occurs when the value of an asset suddenly increases or when there is an excessive amount of market excitement about an asset. When a fad is started or the price of an asset skyrockets, people sometimes say that the bubble will burst, meaning that the market will crash or the value will abruptly fall.
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Crypto Crash
The term “crypto crash” is used to describe a precipitous drop in value of a cryptocurrency or digital asset, typically of 10% or more, within a 24-hour period. Fear and confusion about the cryptocurrency market typically lead to market crashes.
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Capitulation
This is a term used to describe how the asset’s price keeps going down during a bear market. Traders then exert extreme selling pressure on the asset in an effort to unload it as soon as feasible.
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Correction
When the price of a cryptocurrency market falls by 10% or more from its true value, we call this a correction. That’s what occurs when prices drop after being at an all-time high for an extended period of time.
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The Dead Cat Bounce
Dead cat bounce describes a temporary reversal in price movement after a drop.
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Death Cross
Market gurus and traders use this as a reference point on the chart. In technical terms, a “death cross” occurs when the 50-day moving average drops below the 200-day moving average. This means that the price reduction will extend for a longer period of time.
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Brilliant Hands
It’s a phrase heard frequently on social media sites like Reddit and Twitter. This word describes those who continue to invest in cryptocurrency despite the market’s current downward trend. Those in this category are interested in crypto assets for the long haul.
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FOMO
“Fear of Missing Out” is the abbreviation for this concept. It describes the mindset of some investors during a bear market, when they worry that they won’t be able to make a profitable purchase. It’s connected to the wild swings in the cryptocurrency market.
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FUD
Fear, Uncertainty, and Doubt condensed into one negative phrase. All the gloom and doom associated with the bear market is embodied in this symbol.
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the meaning of the golden cross
Professionals place this boundary on the chart at the point where the 50-day MA crosses above the 200-day MA. This is a strong indication that the current upward price trend will persist.
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Liquidity
Easily exchanging one cryptocurrency for another is what is meant by this word. A greater number of traders and investors are drawn to crypto assets that have strong liquidity.
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Liquidation
When a company or organization ceases operations, its remaining assets are often liquidated through a sale. This is done so that investors, such as bankers and stockbrokers, can recoup their initial capital outlays. The process is referred to as “liquidation.” Traders can do this to enhance their capital or when they no longer see the value in owning an asset.
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Capitalization of the Market
This is the total value of all coins and tokens currently in circulation.
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Critical Margin
If the owner’s account balance drops below the margin call threshold, the account will be frozen. In this case, the owner’s profile value falls below the broker’s asking price. In order to continue operating, the owner must either add to the account or liquidate some of his most recent assets.
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Indicator of Change or Average
This is a very popular technical indication on the charts that professionals employ. Actually, it’s a line that shows how prices have evolved after a specified amount of time has passed, such as one month, four months, one day, etc. Traders can use this tool to better anticipate price changes.
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Oversold
An asset is said to be “over sold” when its price has been reduced to an extreme degree. The RSI indicator in the graph predicts this. This is a leading indicator of a bullish price reversal.
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“Pump and Dump”
This is a case of the price of a security being inflated for no good reason. It involves driving up the price of an item through methods like mass purchasing or spreading false information online in order to generate a false demand. The goal is increased profits, so this is done.
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To Risk, or Not to Risk?
In this theoretical framework, rising markets lead to increased trading activity in riskier asset classes like stocks and cryptocurrencies. The opposite is true during market declines, when investors seek out bonds and other safe investments.
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Selling Short
When the market starts to go down, some people sell their belongings in the hopes of buying them back at a reduced price later. This is crucial in boosting his financial standing.
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Trading
Asset exchange refers to the transfer of ownership between two parties. In most cases, the goal is to make a profit off of the preliminary expenditures.
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Volatility
The price volatility of an asset is a proxy for the asset’s volatility. If the price of an asset is unknown and subject to large, rapid changes, we say that it is volatile.
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Whale
The term “whale” is used to describe a very wealthy investor.
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Yield
It represents the total amount of profit a trader makes on their initial investment of capital.
Conclusion
Bear markets are notoriously difficult to foresee, but successful traders still need to keep an eye on historical trends and employ tried-and-true techniques if they hope to weather the inevitable market shifts.
