7 min read
You may hear the terms “bullish” or “bearish” or even both when reading the news or talking to a friend. If you don’t know what they mean, don’t worry. In this article we will tell you all about them.
Both are concepts belonging to the financial world and lately they are being widely used in the cryptocurrency markets. They are totally opposite terms and we will see why shortly. Bullish refers to bull which means “bull” in Spanish, and bearish refers to bear which means “bear“.
Both describe stock market actions and the investor’s own actions. In financial language, for a market to lean towards one of these two words can mean a big change in the economy. To begin to understand it better, one of them represents the most positive predictions while the other one represents totally negative predictions.
A traditional way of referring to these words are the concepts “bullish” and “bearish“. These refer to market sentiment, i.e. what users expect the market to do. Taken to the world of cryptocurrencies, if a user is bullish he expects a cryptocurrency to go up in price, on the contrary, if someone is bearish he expects a cryptocurrency to go down in price.
What is Bullish and Bearish?
As we have already mentioned, both concepts are used to describe situations related to the market and its trends. For this purpose, two animals are used to represent that situation. While Bullish represents a bull market, Bearish represents a bear market.
But why use these animals to refer to the market? This is because of the way both animals attack their prey. Bulls attack with their horns in an upward fashion while bears descend using their body weight. Although it should be noted that this is one of the possibilities, perhaps the terminology comes from other reasons, but this is the most well known.
If we look up the Oxford Learner’s Dictionary, bullish is described as “to cause, or be related to a rise in prices”. Bearish on the other hand means “to show or expect a fall in prices”.
What is a Bull Market?
A Bull Market refers to a bull market where prices are expected to rise. In this type of market there is usually a solid economy where new projects are born and those already created innovate and grow. Every investor dreams of entering a bull market, since when it comes to investing in them, they present less volatility and offer favorable profits.
The characteristics that stand out most in these markets are optimism and confidence that prices will rise. When a market is rising it is easier for beginners to make profits.
In this type of market, confidence that prices will not fall makes investors “bullish“. Their profits will come when prices rise and exceed the value at which the assets were purchased.
There are no defined rules to classify a market as a bull market, however, there is a condition that must be met. To be in a bull market (in the world of cryptocurrencies), the prices of an asset or the entire market in general, must be on the rise for a prolonged period of time.
To get an idea, what usually happens in the markets is a price jump in a cryptocurrency that lasts at most a couple of days. In a bull market the price rise would last a few months or even longer. We can say that the bull market has come to an end when an asset suffers a drop in price of more than 20%.
On the other hand, there are the bulls. This type of inverter, although also represented by a strong and large animal, has different characteristics than the bulls.
What is a Bear Market?
When we talk about a Bear Market we are referring to a bear market. This is usually a market where assets struggle to maintain their price, but decline and the economy is in recession. As in the previous market, there are no rules that mark the limits of a bear market, but it is understood that it is when prices in cryptocurrencies (or any other asset) decrease and fall below 20%.
A Bear Market is characterized by the pessimistic attitude of investors considered “bears”. In this market, investors try to sell all their assets to others in the expectation that the price of those assets will fall considerably. When we hear the phrase “buy low and sell high” we are referring to bullish thinking as they are counting on prices to fall in order to be able to buy assets.
Price declines in a bear market can last for a few days or they can last for months or even years. Such declines are usually continuous.
In the bear market we can distinguish two classes:
- Cyclical market. This usually does not last more than a couple of months.
- On the other hand, there is the long-term bear market. This type of market can continue to decline for years or even decades.
It is common for many users to confuse rapid price declines with bear markets. These one-off declines are usually short periods with reduced selling activity from investors with bearish views. To understand if it is truly a bear market, we must look at the price history and not a sudden drop.
Differences between Bullish and Bearish
As we have already seen, both markets have many differences between them and act in totally different ways. We will now look at the most important differences:
- The economic condition of the market. While bulls point to market prices rising, bears point to market prices falling.
- Market prevalence. Both markets can last for many, many years. However, the bull market generally prevails.
- Investor behavior. Investors in a bear market act out of fear of market downturns and therefore tend to be less active. On the other hand, bull market investors are constantly looking for investment opportunities.