When first investing in cryptocurrency, there are many things to get your head around, but one of the most important is learning about the fluctuation patterns of the market.
As the market is dependent on the actions of investors, it changes all the time, making the virtual currency a volatile but potentially very lucrative asset to invest in.
Those who have been keeping an eye on the figures recently will know it is currently in a bull market. To find out more about what this is and how it affects investments, read on.
Bull market explained
A crypto bull market occurs when markets are experiencing substantial and sustained growth. It can involve long periods of an upward trend or a significant swing in prices, thanks to a boost in investor confidence.
It occurs when the majority of investors are buying cryptocurrency, and as a result, the demand outweighs the supply.
Consequently, this makes the currency more valuable as there is less available to purchase, which forces the price to increase.
An investor who has lots of confidence in the market and who is positive that prices will increase are known as ‘bulls’ and, if the prices are rising at a fast rate, this is a ‘bullish’ market.
A bullish market can continue for some time, as it creates a positive feedback loop. As investor confidence increases and prices rise, this encourages other people to invest as they also want to make gains from their investments. Subsequently, the price carries on rising and supply diminishes.
Cryptocurrency has always been influenced by public confidence, so the more fanfare is made about how lucrative the market is, the greater number of investors will be inclined to buy into it.
However, bull markets cannot and do not last forever, and they will soon head for a crash.
A bear market – how is this caused?
The school of thought is that a bull market lasts around 250 days, which is just over eight months. However, this is not a hard and fast rule and it can change at any time.
Therefore, the later an investor buys crypto, the closer they are to losing value in their asset. This fear could mean fewer people become interested in investing and some even want to sell their crypto because the price drops and they lose money.
Pessimistic investors, who are known as ‘bears’, can have a big effect on the rest of the market, because as soon as they start selling, this can create a panic that forces the market to fall.
When a market is in substantial decline or has been dropping for a long period of time, this is known as a ‘bear’ market.
As well as being triggered by a drop in investor confidence, bear markets can be caused by unforeseen circumstances, such as the Covid-19 pandemic, or other economic crises.
Unfavourable legislation, geopolitical changes, and other global news can cause investors to sell, resulting in a collapse of crypto value, as supply becomes greater than demand.
By selling quickly, they cause the price to plummet, which results in other investors panicking and acting promptly to sell their assets too.
It is important for investors to remember that short-term downward movements do not necessarily indicate a bear market, and it is best to have a long-term view of the market and see what the price is doing over a significant period of time.
Similarly, it can be difficult to know when a bear market has ended and prices are likely to rise again. This can be caused by other factors like the economy and world politics, so investors cannot easily estimate when the market will turn around.
However, those who want to play a long game with their investments could buy in a bear market and wait until it improves and their crypto begins to increase in value. It may decline in price initially, but the cycle will always reverse, so buying when the cost is low is not a bad move.
In fact, bear markets present lots of opportunities to make substantial profit, as long as you have a long-term strategy for your money and do not need to cash out in the next few months.
The good news is that crypto credit cards can be used in both bull and bear markets, with the value of crypto being exchanged into fiat currency during the transaction. How much crypto you spend for the equivalent fiat money will simply depend on market fluctuations at the time.