What Is a Bear Market?

Bear Market

To begin with, let’s give a definition to the ‘bear market’ concept. A bear market is a situation when prices decline. It concerns any market, not only the cryptocurrency world. There is either a stable or big decline at a bear market. Such a decline can be observed for many months or even years.

As a rule, a bear market is associated with securities prices fall 20 per cent, negative investor sentiment as well as widespread pessimism. Besides, a recession (an economic drop-off) is usually accompanied by a bear market.

One cannot say for sure what the most significant reason for a bear market strengthening is. The reason for it can include wars, pandemics, turning to online economics, weak economics and geopolitical crises.

Let’s consider the key points that show some differences between bear and bull markets. To start with, bull markets usually rise 20 per cent from current bear market lows or more and get to record benchmark highs. Otherwise, bear markets mean a stock index or an individual stock that decline 20 per cent from its current highs or even much more. Additionally, there is hope among investors that prices will rise in the future in a bull market. On the contrary, investors in a bear market are going to sell their investments during the time and avoid losing enormous sums of money. Unfortunately, investors tend to sell their holdings which further impacts the declining prices. Such periods in the financial sphere are called capitulations.

Furthemore, a bull market tends to continue seven years while a bear market tends to keep for one year on average; the rate of unemployment is declining during the period of a bull market and it is rising during the time of a bear market.

It should be mentioned that the Dow Jones Industrial Average had 32 bear markets in the period between 1900 and 2018. As it was said above, one of causes of a bear market can be economic crises. Therefore, the greatest bear market in the world coexisted with the world financial crisis, which happened during the period 2007– 2009.

To sum up, no one can deny that a bear market provokes worrying thoughts in the minds of investors. Nevertheless, we cannot forget that a bear market is unavoidable and short overall. Bear markets can be useful and offer investment opportunities for a change.