In global financial markets, a bear market is symbolized by an extended period of decline or weakness in the price of financial assets. When the market mood turns bearish, assets such as stocks, commodities, or even cryptocurrencies decline. Investors turn more cautious about trading or holding them in their portfolios.
Characterized by a risk-averse mood among investors, a bear market weighs heavily on riskier financial instruments, including cryptocurrencies. During such a bear market, crypto assets experience sharp sell-offs that can cause severe losses to traders as prices of the assets dive down suddenly.
Economists term a market bearish when prices of financial assets decline by more than 20% over at least two months. An extended period of bear market is also called crypto winter.
Effective trading strategies during a bear market include short-selling, options trading, or reduced trading activity. However, some analysts recommend buying in a bear market as the declining prices of assets make them more accessible and affordable when most investors stay away from the market.