What Is A Bear Market?
A bear market is a downward state of a market in which more than a 20% decline is witnessed. The bear market is the opposite of a bull market. It can last for months, sometimes years, and as a result, inexperienced traders tend to suffer the most.
When investors start selling, prices drop, and a violent cycle begins. As a result, the sell-off engulfs all the small investors. A bear market takes place when investors start pulling back or dumping crypto assets due to a lack of confidence. On various occasions, pity rumors caused traders to sell assets in the past. As a result, the market slumped, dragging everything else. Political instability is also a big reason behind the bearish market in developing countries.
A bearish market cannot be predicted; sometimes, it even occurs in the middle of long-term bull markets. It is improbable to forecast a market whether it would go bearish or bullish. Hence, keeping a close watch over the investments is the best option. But some traders still make profits during the bearish market. They usually do this by short-selling their stocks. Short selling is a strategy used by investors in which they borrow shares, sell them at a lower price, and then purchase them back after the price decreases further, but it is a risky technique.
A Look at the Major Bear Market Instances
The twenty-first century started with a major bearish market known as the Dotcom Crash. This crash also started because of traders’ fear of a possible bear market, but in reality, their fear caused the bear market. A recession in Japan also added fuel to the fire, and as a result, the economy got heated.
The financial crisis of 2008 is something all of us know about. On this occasion, an American company specializing in subprime mortgages applied for bankruptcy. As a result, people who was trading lost confidence in the market resulting in a huge bear market. Due to this, this bear market is still known as the Subprime lending crash.
The Corona Virus crash 2020 is the most recent bear market in history. It hit the indices market mainly, and the primary cause was panic and travel restrictions for traders.
What is a Crypto Bear Market?
Similar to other markets, when the prices of crypto assets show a prolonged negative trend, it is called a crypto bear market. Understanding a crypto bear market doesn’t require any additional research as the same rules apply. The only difference is that Bitcoin dominates the whole crypto market so when Bitcoin witnesses a bear market, all altcoins get affected too.
Interesting Facts about Bear Markets
- A market is officially declared bearish when it losses 20% of its value.
- On average, stocks and Crypto lose 36% in a bearish market and gain 114% in a bullish market.
- A bearish market is a common phenomenon and in the last century, 26 bear markets have been encountered. Interestingly, the number of bear and bull markets at this time is equal.
- The average length of a bear market is shorter than that of a bull market.
What to Do During a Bear Market
A trader can take many techniques and steps during a crypto bear market to avoid a loss. Some of the measures are given below:
- Don’t sell it all just because others are doing it.
- Try to stash your money in defensive stocks such as necessities.
- Invest your funds in bonds as they behave opposite to stocks.
- Invest in dividend stocks because it is a smart technique to lower the effects of a bear market.
- Take solace in the lipstick effect. It is said that people still buy small luxuries (like cosmetics and fast foods) in times of financial crises and recessions.
- Re-align your investment portfolio to utilize the time positively.
- Wait patiently during the bear market and don’t make hasty decisions.