What Is Bear Market?

The term is likened to a bear swiping its paw downward as it attacks. In bear markets, trading volume generally declines, interest in new projects drops and the news flow turns negative. Because of its high volatility, the crypto market can experience much sharper declines; in some periods, Bitcoin has lost more than 70 percent from its peak, and many altcoins more than 90 percent.

In crypto history, 2018 and 2022 are cited as distinct bear market periods. The 2022 decline was accompanied by events such as the collapse of Terra/LUNA and the bankruptcy of the FTX exchange. Bear markets are also seen as periods in which overleveraged companies and unsustainable business models are weeded out of the market.

Short, sharp rallies can also occur in a bear market; however, these can be temporary recoveries known as bull traps or dead cat bounces rather than a lasting reversal. It is impossible to know in advance when a bear market will end. In these periods, some investors turn to regular buying strategies such as DCA, while others prefer to reduce their risk. The opposite of a bear market is a bull market.