Mastering the Token Market


What are bull and bear markets?

Learn how crypto market cycles work, and the best ways to navigate them.

Token Takeaways

The crypto space has historically moved in cycles known as “bull” and “bear” markets.

✨ Bull markets involve hype and upward price movements, while bear markets see prices drop.

✨ Bear markets are often the best time to get exposure to tokens as lower prices can offer greater upside potential. 

The crypto space moves in cycles. Since inception, the crypto market has been extremely volatile, rising in value every few years before suffering from sharp selloffs. These cycles are popularly known as “bull” and “bear” markets. Understanding the impact these conditions have is key to successfully navigating the space, finding the best crypto to invest and when to do it. That’s why we put together this guide explaining how they work, and why it can be a good idea to go against the crowd. Read on to learn more.

Bull markets explained 🐂

Bull markets are a condition of a financial market where asset prices rise over a period of time. In bull markets, sentiment is typically strong. This leads to increased buying pressure and sustained growth. A “bull” or someone who is “bullish” has high confidence in an asset’s future price potential.

Though the exact origin of the terms “bull” and “bear” is unknown, both bulls and bears have been used in blood sports in the past, where attendees would bet on their performance. Additionally, bulls use their horns in an upward motion to attack opponents, while bears strike downward with their claws.

The Charging Bull statue located near Wall Street in New York, built to represent the city’s financial sector (Source: Mark Lennihan/Associated Press)

In the crypto space, bull markets can be intense. Those who buy into the right tokens at the right time can make staggering returns.

Crypto bull markets have historically followed Bitcoin’s “halving” events when the amount of BTC, Bitcoin’s cryptocurrency, rewarded to miners per block decreases by 50%. The crypto space’s three major bull markets occurred in 2013, 2017, and 2021, months after a halving event.

Token tips: Some believe that Bitcoin’s halving events kickstart bull markets as they highlight the top crypto’s scarce supply. BTC’s block rewards decrease by 50% with every halving. The next one is expected to land in April 2024 💡

Bull markets bring new attention to the token space. New projects emerge and hype for tokens increases. The atmosphere also tends to be busier and more chaotic. While bull markets welcome new crypto adopters, they also attract price speculators and illegitimate projects. Many token enthusiasts say they prefer bear market environments.

Bear markets explained 🐻

Contrary to bull markets, bear markets are characterised by prolonged price declines. A “bear” or someone who is “bearish” expects to see downside in an asset or market. 

In the crypto space, bear markets have historically followed bull markets after a cycle peaks. The last token bear market started after the space soared to a valuation of $3 trillion in November 2021. It also landed alongside a bear market for stocks and traditional equities due to rising interest rates.

Token tips: Interest rates have a significant impact on financial markets as the cost of borrowing money increases when rates rise. This encourages people to save money instead of investing in risk assets. The Federal Reserve and other central banks started hiking rates to curb inflation in 2022, causing price declines across financial markets 💡

Bear markets in the crypto space can be brutal. Just as high upside volatility is common in bull markets, huge price declines are normal in bear markets. Many projects die as their asset reserves deplete in value. These periods are also popularly known as “crypto winter.”

Major news publications declared the death of crypto after FTX collapsed in late 2022. Similar headlines have appeared multiple times over the years during bear markets (Source: The Economist)

The last crypto winter started in 2022. It saw a series of negative events, most notably the collapse of Terra, Three Arrows Capital and Celsius, and FTX. Many dismissed tokens as dead following these events as sentiment weakened.

Navigating bull and bear markets

While bull markets attract hype, they are not always the best time to buy into crypto projects and invest in crypto exchange. This is because projects can become overvalued as the hype and the expectation of future potential gets ahead of the present reality.

Bear markets, meanwhile, are regarded as a time for builders and believers. Many projects fade away during bear markets, but some also decline in value before claiming new highs in the following bull cycle. It can be the time to find the best crypto to invest in.

The ETH/USD chart over time. The bear market of 2018 through 2020 proved to be a better time to buy ETH than the bull market of 2017, and it took years for ETH to break its all-time high price (Source: CoinGecko)

For example, ETH, Ethereum’s cryptocurrency, topped $1,430 at the peak of the 2017 bull cycle and later declined to $80. Those who bought in at $80 saw a return on their holdings faster than those who bought at the peak. ETH didn’t reclaim $1,430 until February 2021.

While it can be difficult to predict market peaks and troughs, many market participants find success with the dollar-cost averaging strategy. This involves making scaled buys during market slumps and scaled sells during market rallies. 

To date, the crypto market has experienced three full bull market cycles, with each one bigger than the last. However, over time, token bull and bear markets could become less extreme as the asset class matures. We are already seeing evidence of this, with Bitcoin’s returns diminishing as its market capitalisation increases.

Nevertheless, it’s likely that volatility will remain a key characteristic of the space for some time yet. 

Learn more 💫

Now that you’ve read our guide, you should have a clearer idea of how bull and bear markets impact the token ecosystem. Understanding the market’s dynamics is key to succeeding in the space as price valuations affect confidence in tokens, and they can determine whether projects succeed or fail. Check the other articles in our series for more on mastering the market, or head to the app to start exploring. 

Please note: Investing in cryptoassets is risky. Due to the volatile nature of the cryptocurrency market, investors run the risk of losing their funds when they make an investment. Returns from cryptoasset investing are not guaranteed, therefore users should always be aware of the risks.