Market sentiment has always played a role when asset prices increase or decrease. An asset could be a stock, house or cryptocurrency. The term bull and bear market are commonly used to refer to market conditions.
Market sentiment is crowd psychology, as revealed by the behavior and price action of specific markets. Rising prices suggest bullish market sentiment, while declining prices indicate bearish market sentiment in general.
What is Market Sentiment?
Historically, market sentiment has been observed to be a cyclical occurrence. When referring to almost any asset market, you will hear it referred to by one of two terms: bull market or bear market. These are the two most common ways of characterising market sentiment.
If you’re getting into asset purchasing at any level, you will want to understand what type of market you are buying into. Bull markets require a different mindset and buying attitude than bear markets. The most important part is to understand the market and tailor your investing approach depending on the market sentiment.
What is Measuring Market Sentiment?
Measuring market sentiment can prove to be difficult. It is typically measured by observing the views and actions of the investor population.
There are many different ways you can capture cryptocurrency market sentiment. There are a number of tools like LunarCrush that assign a score out of 100 different cryptocurrencies based on their social sentiment. For those interested in Bitcoin, you can access this fear and greed index to get a better understanding of market sentiment.
Another way to identify a trending topic is to look at Google Trends over different time intervals. For example, you can look at the volume of Google searches for Bitcoin over a customized time period within the last decade or so since it was created. Times that the Google search volume was higher for Bitcoin revealed bear market sentiment.
What is a Bull market?
A bull market refers to a period of time when the market is on the rise and economic conditions are generally quite favourable. During a bull market, investors typically have a lot of confidence that the uptrend in prices will continue over the long term.
One of the easiest ways to spot a bull market is a drastic upward trend in a given market. Some call it a hockey stick. This generally points to investors being “bullish” about the price growing from what it is currently.
When a bull market starts, the rise in price causes investors to become more confident in that coin, thus furthering the confidence in other investors creates a positive feedback loop that has the track record of bringing in further investment which in turn, raises prices.
Since the court of public opinion tends to steer cryptocurrency values, some bull investors will try to measure market sentiment.
What is a Bear Market?
The end of a bull market tends to mark the beginning of a bear market. When a market is bearish, it is in decline. In traditional stock markets, a market is typically referred to as bearish when it drops by 20% from it’s previous highs. During
Should I invest in a Bear Market?
Investing during a bear market is one of the most difficult investing strategies for a few reasons.
Bottoms are difficult to predict:
Who knows when the bottom will come? If Bitcoin dropped 25% whose it says it wouldn’t drop another 15%? Even if it raised back to its peak, you would have to buy a lot to see any substantial returns on a 25% upward run.
One the flip side, investing during a bear market can be the most lucrative investment available. It requires a more long-term strategy.
At the end of the day, investing in both markets have their potential upside when done right. It’s all a matter of research, observation and properly-timed action.
How to spot the end of a bull market?
As the age old saying goes ‘what goes up must come down.’ As much as 2010 Bitcoin owners would love to see the prices rise forever, market dips will happen and assets that were once a hot item will become yesterday’s news.
Generally a good way to spot a dip from the end of a bull market is to keep up to date with the news. World events tend to have their influence on the cryptocurrency market and a currency can drop for everything from bad PR, to unfavorable legislation or an unforeseeable event i.e. worldwide pandemic.
Bull markets necessitate a different outlook and approach to buying than bear markets. A bull market is described as a phase in which more buyers are purchasing rather than selling. A sharp upward trend in a stock is one of the best ways to identify a bull market. The more optimistic investors are about a particular asset, the more likely it is to succeed. Market sentiment is everything. When done correctly, investing in both markets has potential upside. It’s all about testing, observation, and taking the right steps at the right time.