LeoGlossary: Bear Market
When a market is on an extended run with prices declining. This is usually accompanied by an overall feeling of pessimism.
The main driver tends to be fear when the bear is running. It is also a time of a lot of FUD.
With equities, a bear is indicated by a 20% decline in the overall pricing of the market. It is uncertain how this equates to cryptocurrency since there is much greater volatility and large swings are natural.
This is in contrast to a bull market.
Bear markets tend to be a time of cleansing. Whereas businesses and economies get fat during the bull runs, it is when bear markets hit that people start to take a closer look at things. This could be associated with a recession although the concern is usually enough for people to start adjusting their behavior. It also tends to follow the business cycle.
These are when there is a destruction of a massive amount of capital. Not only do people pull money out but markets caps are crushed. We see leverage taken off as risks are increasing. Depending upon the market, defaults can be an issue, especially for those with large debt loads. Also, financing gets a great deal tougher.
Markets tend to move quicker than the economy. For this reason, bear markets often end while a recession is still in place. Even though economic conditions continue to deteriorate, markets, especially equities, can turn. Here is where we see the risk-on sentiment take over. During the bear, risk-off is the attitude.
Bear markets are also exemplified with the "flight to safety". Here we see people opting for more conservative investments. Speculation is pushed aside for yield. Fixed income instruments such as bonds or certificates of deposits are often preferred. Many take a cash position, parking funds in a money market account.
Within the cryptocurrency realm, stablecoins are emerging as a great way to counteract the effects of a bear market. People can swap out their favorite coins or tokens into a stablecoin, something that they can then stake for yield.
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