We keep hearing that cryptos are now in a ‘bear market’, we explain what it really is.
The term bear market is currently very often used by financial websites, analysts, experts and so on. In good Dutch that is the bear market. The principle behind this is quite logical, but we’ll explain it for you.
A 16th-century proverb says, “It is unwise to sell a bear’s hide before catching it.” That’s one of the stories used to explain why someone who sells a stock expects its price to fall. This is what you call a ‘bear’. It follows that a market in which securities or commodities continuously fall in value is known as a “bear market”, as the crypto markets now experience. The stock markets are now also affected, that is where the term originally comes from.
The opposite, when assets rise steadily over a period of time, is a “bull market.” These two terms are used for large fluctuations. And with fluctuations comes emotion. That’s why we like to use expressions like ‘bulls’ and ‘bears’, which are reminiscent of the ‘animal spirit’ of investing.
The Securities and Exchange Control Commission In America, a bear market defines as a period of at least two months when a broad market—measured by an index such as the S&P 500—drops 20% or more. When it rises 20% or more for two months or more, it is a bull market.
A bear market can be a signal that a recession is coming, although it is not a perfect correlation. Since World War II, there have been three bear markets — out of a total of 12 — that have not preceded a recession. Now that is different with cryptos that are more volatile, but at the moment we speak of a bear market.