A bear market is a situation where the market is facing a continuous price decline. It’s often visible when the market prices drop by more than 20%. This 20% decline should be sustained for a while, mainly two months and continuing. Bear markets are the opposite of bull markets which occur when the market is on a continuous uptrend for a sustained time.
What Causes Bear Markets?
Of course, Bear markets arise when there is negative information in the markets. This news or information begins causing fear, uncertainty, and doubt in the investors. The investor FUD reduces the demand for stocks in the market drastically.
The FUD could be caused by adverse developments and global problems like the Corona pandemic. In fact, after the start of Covid in 2020, most stock markets were in a bear trend for months. Crypto markets also went into bears for some time.
Another reason for bear markets is investor speculation and changes in oil prices. Negative news like the Evergrande problems, the Chinese fighting crypto almost started long bears. Moreover, Chinese crypto news in May 2021 made the crypto market lose half of its market cap. The crypto world has been the home to many bear markets, some lasting as long as 15 months.
The Stages to Bear Markets
Of course, to understand the bear markets, we need to know how they occur. Here are the main phases involved in bear markets;
- Phase one involves investors having good sentiment and the prices being relatively high. As the prices are very high, investors begin selling and withdrawing from the market. Poor market sentiments cause their withdrawal.
- Crypto assets begin to lose prices, and the demand for the assets drops drastically. The sentiment on crypto markets begins to be more harmful.
- The third stage is when speculators come back to the market and buy the asset for long-term holding.
- After speculators’ involvement, then prices begin falling. But, this time, the coins fall in prices slower.
- This process often reverses after some time when good news begins to flow. More people buy, and this could start a bull market.