What is a bear market?
A bear market is the part of a market cycle when prices are trending downwards, generally due to fear that prices will continue to fall. This triggers further selloffs and becomes a self-fulfilling prophecy. Traditionally, a bear market has been defined as when prices decline by more than 20% from recent highs. However, in the case of cryptocurrencies, this number is debatable as corrections during bull runs can sometimes exceed 20% before resuming an upward course. In late 2018, Bitcoin fell by almost 80% from its high in January of that year, which was considered the most recent bear market for crypto.
For large-scale investors, a bear market can be seen as an accumulation phase for buying up assets at cheap prices in preparation for when prices potentially begin to rise when the next bull cycle arrives.
Bear markets get their name from the declining financial chart pattern. This is said to take on the shape of a bear with its nose pointing downwards. In contrast, a bull market gets its name from its horns that point upwards, indicating upward price trends. Bear and bull markets can last for months or even years.
Bear markets can be brought on by difficulties in the wider economy, such as decreases in government borrowing or spending, higher levels of unemployment or debt crises, such as the crash seen in 2008.
However bear markets also happen in times of economic prosperity and are seen by some economists as healthy parts of market cycles. Prices cannot continue to rise forever, so bear markets can be seen as a response to the adage that what goes up, must eventually come down.