What is a bear market?

You open the chart, see red and wonder whether the market has entered a bear market? One sharp drop isn’t enough to draw that conclusion. We look at the duration, the size of the decline and whether recovery attempts are losing steam.

Picture a staircase going down that also has a few steps going up. In a hypothetical example, a coin falls from €100 to €70, rises to €85 and then drops to €60. The rebound in between was real, but it didn’t reverse the overall downtrend. In phases like this we often see lower highs and lower lows, although that isn’t a hard-and-fast rule.

The word bearish describes a downbeat outlook or negative sentiment. Someone can be bearish on Bitcoin for the next few days even if the wider market isn’t in a bear market. The opposite of a bear market is a bull market, i.e. a rising market.

Why it matters

For crypto holders, a bear market can mean a prolonged decline in the value of their portfolio. The pressure may be linked to a limited appetite for risk, economic uncertainty or problems within the industry itself. No single cause explains every downturn.

Liquidity, i.e. the ability to trade without a big impact on the price, may also shrink. As a result, a large sell order can put more pressure on a small token. We find it useful to separate the price trend from the state of the project: a decline doesn’t prove technical failure on its own, but good technology doesn’t guarantee a recovery either.

What to watch out for

A strong rebound doesn’t confirm that the bear market is over. Likewise, a big drop doesn’t prove the price has hit bottom. The bottom can only be identified with certainty in hindsight.

Leverage, i.e. increasing your exposure with borrowed funds, can lead to a position being forcibly closed (liquidated) when the market moves against you. And the fact that a coin has already lost much of its value doesn’t stop another large percentage drop from the new, lower price.