• What Bull & Bear Markets mean
•  Origins of the terms Bull & Bear market
• Bulls, Bears & the search for crypto narratives
• How to ride out Bull & Bear cycles

Despite their complex use cases, there’s no escaping the reality that many cryptocurrencies are bought as speculative assets, in the hope that they’ll appreciate in price. Sentiment plays a massive role in price movement, and though it cannot be quantified in units of positive or negative vibe, two terms are used more than any other to summarise an expectation that number goes up or number goes down. So if you care about price, it is worth learning the meaning of the terms Bull and Bear Market.

A Bull Market is one in which the general expectation is that prices will rise. A Bear Market is one in which the general expectation is that prices will fall.

They are two of the most widely used terms in crypto market analysis -- and trading in general -- because the battle between those two animals can determine whether your investment portfolio turns green or red. As important, and ubiquitous as they are, they paradoxically lack any real definition. 

The widely held benchmark within traditional finance for a move to a Bull or Bear market, is a 20% correction from the previous phase. 

For crypto, where volatility is on an altogether different scale, those numbers are definitely larger, but not defined. But as crypt trading screens consistently blink red or green, somehow aggregate sentiment builds to a consensus as to which animal is driving the market. 

Once the label sticks it can become a self-fulfilling prophecy, pushing prices further up or down, so you should pay attention to which beast is thought to be winning the battle.

The origins of the terms Bull & Bear market

The terms Bull and Bear Market are not unique to crypto, they are simply inherited from traditional financial markets, but to add to the vagaries of their definition, their origins are also unknown.

The most widely accepted root of the Bear’s association with falling prices comes from North America and bear skin trading. Traders would sometimes sell their skins before they’d actually trapped the animals, anticipating a fall in value. This led to the proverb “to sell the bear's skin before one has caught the bear”. 

Similar to counting your chickens before they’ve hatched, it was pejorative; seen as a way of locking in profits, before any animals had actually been caught, but the fur skin trade was lucrative, so it was tolerated.

The term ‘bears’ became more widely applied after the famous South Sea Bubble in the 18th century, applied to those who borrowed shares, sold them, then repurchased at a lower price - what we now call short selling.

Others believe the terms derive from the early version of the London Stock Exchange in the 1600’s, when traders would place ‘bulletins’ on a notice board to buy stocks - pushing up price - which would be ‘bare’ when there was no demand -- causing prices to fall.

Traders would sometimes sell their skins before they’d actually trapped the animals, anticipating a fall in value. This led to the proverb “to sell the bear's skin before one has caught the bear 

Another more simplistic theory simply relates the association with the history practice of pitching bulls and bears in animal fights; the bear would swipe down, while the bull would gore its horns upwards. That theory is, however, a bit reductive, and lacks any real evidence.

• Learn about the signs of a Bear Market

Bulls, Bears & random walks

Whatever the true origin, Bulls and Bears are intrinsically associated with trading. If you go to New York’s financial district, there’s a 3,200 kg bronze bull looking menacingly at tourists. 

Though the bull is seen as a sign of optimism within the markets themselves, what has become known as the Charging Bull arrived in December 1989, uninvited. It was created as a protest by Italian sculptor, Arturo di Modica, in the wake of the 1987 Black Monday Crash; one of the darkest days in financial markets ever.

That crash saw a 22.6% fall in the Dow Jones Industrial Average; the single biggest daily fall in the history of the US stock market’s main benchmark. 

Just like that sculpture, Black Monday arrived unannounced, making its impact much worse, but underlining the reality that what moves markets largely remains a mystery. One popular theory even describes price movement as a random walk, making price prediction a futile coin toss. 

Bull, Bear markets, crypto price & narrative

The inherent unpredictability of financial markets means that narratives become crucial, and given how immature and largely misunderstood the crypto industry is, narratives are elevated to an even greater significance.

The Bull and Bear market labels can be very consuming, but don’t be left thinking that the crypto prices are always either hurtling skyward, or plummeting to the ground. There is a lot more nuance, and in relation to crypto, other very domain specific context and cyclical narratives.

The most obvious is that being open-sourced and decentralised, crypto - unlike traditional financial markets - has no trading hours. People are buying and selling 24/7/365; the markets never stop. 

Those qualities, along with crypto’s immaturity, the focus on speculative future value and the associated volatility, mean that market participants are a unique mix of professional traders, institutions, miners and recreational investors. Each of those groups has a different reason for being in the market, time preference and risk tolerance.

The predictable functioning of crypto also lends itself to narratives, the most famous being Bitcoin’s halving cycle. This is the four year adjustment in the reward miners receive for adding new blocks of transactions to the Bitcoin blockchain. 

Bitcoin has in-built scarcity. Only 21 million bitcoin will ever exist, and halving is how Bitcoin gradually throttles the rate of issuance. Currently, 6.25 new bitcoin are added to the supply every 10 minutes. In 2024 that will go down to 3.125, continuing in that way until in 2140, when the maximum supply is expected to be reached.

Though the mechanics of halving are objective, and price tends to increase soon after, you still cannot be sure whether that is due to the simple fact that supply is decreasing and demand stays the same, or that being common knowledge halvings are always priced into the market.

By just scratching the surface of the concepts of Bull and Bear markets, then overlaying other crypto specific narratives, you soon see how hard it is to decide what really moves price.

As you build up your twitter feed with crypto analysts, influencers and pundits, the related adjectives used - Bullish and Bearish - are markers of their belief in a particular narrative, as well as in many cases, just naked hope. 

Another important consideration, particularly in recent years from the last crypto rally in 2021, is that crypto markets have begun to display more and more correlation to traditional stock markets. That is, crypto bulls and bears appear to happen at the same time a stock market bull or bear appears. This was contrary to many predictions believing otherwise in years past, where crypto was seen as the complete opposite to traditional investments, performing well if markets like stocks don't and, conversely, depreciating when conventional assets appreciate. This was because crypto was initially seen as a hedge against traditional markets, or an alternative in a diversification portfolio.

However, the events of the period between 2021 and 2023 have shown a remarkable correlation between crypto and stock markets. A recent research study from Georgetown University shows that over time, the price of cryptocurrencies and the stock market have been correlating on an increasing curve.

In fact, in periods of high market volatility, such as the 20 February Black Monday stock market crash of 2020, crypto appears to follow the stock market's lead even more. For example, Nasday lost over 12% on that day, but Bitcoin lost over 50% of its value. Similar major events like the Covid19 pandemic and Russia's military action in Ukraine have shown similar results and reinforced this correlation

This correlation appears to be a result of growing acceptance of crypto by institutional investors, who invest in crypto with the same interest as in conventional assets.

Digital assets are losing their hedging benefit just as more institutional investors enter the crypto world. In fact, allocators may be the cause.

The truth is, no one really knows why markets turn and certainly not when. If you can adjust your time preference far enough into the future, you’ll likely experience both the Bull and the Bear coming out on top in their never ending fight to dominate price. This might help to accept them as natural, if slightly mysterious, parts of the market cycle, while you keep calm, and hodl.