Are Previous Bull And Bear Cycles An Indicator Of Future Performance?

When considering worthwhile investments in this sector, seasoned investors use the historical price performance to know if there is potential for an asset to make gains or losses. The previous bull and bear cycles are also used to predict any future changes in prices.

What is a Bull and Bear Cycle?

Whether you are investing in the stock, real estate or cryptocurrency sector, you will come across the terms bull cycle and bear cycle. A bull cycle is when the market is on an upward trend, while a bear cycle is when the market is on a downward trend.

The cryptocurrency market is highly volatile, and the terms bull and bear cycles are used to define a long time when prices increase or drop.

During a bull cycle, also known as a bull run, most traders are buying, and the demand is higher than the supply. For example, when the overall market sentiment is bullish in the crypto market, it could signal the start of a bullish cycle.

Moreover, crypto traders who believe that the prices of cryptocurrencies will increase in the coming future are known as crypto bulls. For instance, Michael Saylor, MicroStrategy’s CEO, is a popular Bitcoin bull, as he believes that Bitcoin could reach $100,000.

While the bull market is a good sign, history has it that a bull cycle does not last for very long because the uptrend reaches exhaustion. Bull cycles are usually ended by news such as regulation and unexpected occurrences in the financial market. A sharp decline after a bull cycle created the beginning of a bear cycle.

A bear cycle is the opposite of a bull cycle. This is when the supply is greater than demand, investor confidence is low, and prices are falling. Crypto critics who believe that prices will fall with time are known as crypto bears.

Bear markets are usually tricky for new traders because it can be hard to predict when the downtrend will be exhausted. The end of a bear market is usually marked by a slow rebound, and prices can even consolidate at the same levels for several weeks or months before any major uptrend is registered.

However, bear markets present ideal buy opportunities for investors left out of the previous bull cycles. Bear markets also present profiting chances for advanced traders who short-sell by predicting that the prices will decline.

Can Past Bull and Bear Cycles Indicate Future Performance?

Now, let’s put the bull and bear markets in the context of cryptocurrencies, specifically Bitcoin. In 2013, Bitcoin entered into what is now known as “The 2013 Bitcoin Bubble.” After 2013, Bitcoin entered into a bear market that lasted for several months. Moreover, the prices consolidated for almost two years until 2015.

After this year, Bitcoin entered into a strong bull cycle that lasted until 2017. The prices moved from around $300 during the two-year consolidation phase and reached almost $20,000 in December 2017. However, after 2017, Bitcoin entered into another bear cycle as prices dropped to around $3200.

Fast forward to 2020 and 2021, wherein in March 2020, after the COVID-19 pandemic, Bitcoin fell from around $14K to below $4K. However, one year later, it had entered a sharp bull cycle to hit an all-time high of above $65K.

Seasoned investors and analytics platforms use the occurrences of these previous bull markets to know if prices will rise or drop. For instance, the recent news of the new COVID-19 variant named Omicron led to Bitcoin’s drop to below $54K. This was similar to what happened in March when news of the pandemic broke out.

Moreover, regulations also have a role to play in the bull and bear cycles. Currently, the global regulatory framework around cryptocurrencies is changing. This means that cryptocurrencies could show strong resilience in withstanding the effects of these regulations. However, a change in regulation in a large economy such as the US could trigger a bear cycle.

Nevertheless, the bear and bull cycles are different. What triggers the current cycle could be different to what triggers the next one. Hence, investors need to analyze the market using the historical price performance and other technical indicators.

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