A number of colorful terms have been coined to describe price action in financial markets. What are bull markets, bear markets, and a crypto winter?
Investors generally prefer bull markets, which is a sustained time of rising prices. Market participants generally believe the market is in a bullish phase after prices have risen by 20% or more. The market is said to remain a bull market until a bear market is experienced. In a bull market, traders seem confident that prices will continue to rise and some even succumb to greed.
A bear market is the opposite of a bull market, which is a sustained time of falling prices. Bear markets are most commonly discussed after prices have fallen by 20% or more. The bear market will be in place until prices rise 20% and the market transitions to a bullish phase. In a bear market, sentiment becomes decidedly negative and can turn to fear for many investors.
Investors can profit during a bear market through the use of short selling, which are positions taken that benefit from falling prices.
Cryptocurrency investors have been discussing the return of crypto winter, which is a time when crypto prices have fallen dramatically. Drawdowns in crypto winters can be sharper and longer lasting than equity bear markets. For example, after hitting a high price above $19,000 in December 2017, bitcoin fell to under $3,300 in December 2018. Subsequently, bitcoin prices rose to above $10,000 in August and September of 2019 before falling again to below $6,000 in March 2020. At that point, bitcoin quickly thawed to reach new highs of over $65,000 in November 2021. A new crypto winter is upon us, as bitcoin prices fell from that new high in November 2021 to below $20,000 in June 2022.
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