The severity and duration of price drops vary widely, which can be incredibly stressful for investors—if they don’t have a plan in place. As with bull and bear markets in stock investing, it’s essential to think about how you’ll deal with the volatility of investing in crypto. Without a plan, it’s easy to make hasty, emotionally driven decisions that could hurt your portfolio.

What are bull and bear markets in crypto?

A bull market is a period in the crypto market when prices rise for an extended period. Crypto bull markets have typically lasted for a couple of years. Although these periods do see price drops, they’re usually not as severe as a full-blown bear market, and many investors view them as good buying opportunities for the long term.

Bitcoin—the oldest and largest cryptocurrency (by market capitalization)—has had four bull markets since it broke USD$1 in 2011. In the latest of these, the coin rose over 1,100% from the lows of the COVID crash in early 2020 to its all-time high in late 2021.

A bear market, on the other hand, is a period when crypto prices crash from all-time highs and continue to fall steadily. Unlike a minor “dip,” a bear market could see crypto prices fall 50% to 90% from their highs. In fact, bitcoin has fallen 50% or more seven times since 2012, with the largest fall being about 87%. For added perspective, the average market-weighted drawdown, or decrease, in bitcoin’s history is about 60%, and as of early June 2022, the coin is down well over 50% from its recent high of above USD$67,000.

Because of their severity and the sense of doom they create in investors’ minds, crypto bear markets are sometimes referred to as a “crypto winter.”

The psychology of crypto investing in bull and bear markets

Psychology can play a significant role in an investor’s success. Each stage of the market cycle corresponds to a typical psychological state, and knowing this can help you avoid making decisions based on emotions.

For instance, when the market is at or close to all-time highs, euphoria prevails. Investors can fall into a false sense of complacency and end up making decisions they may regret (like buying more crypto at the peak of the market) or thinking a certain cryptocurrency will only keep going up. On the other hand, at the depths of a bear market, investors suffer from disbelief and agony, and they may feel as though the markets will never rise again.

It’s very difficult to make strategic investing or trading decisions when you’re overcome with strong emotions, so consider having a plan in place for different market scenarios. Below are tips for both long-term investors and short-term traders on how to deal with bull and bear markets.

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