Back in 1936, John Maynard Keynes, wrote about the “animal spirits” that have a crucial impact on the overall economy. This was a way of describing all of the different emotions investors, consumers, and other market actors. They may feel during different parts of normal economic cycles. Everyone can become fearful as the stock market is falling, which can turn into a self-fulfilling downward spiral. While the boom times can make everyone feel wealthy and as if the good times will never end. The two key crypto animal spirits that describe the two major aspects of the market cycle are “bull” and “bear”.
These two metaphors are used to describe the current state of the market. This is whether its heading on an upwards or downwards trajectory. The current feelings of market participants can have a greater impact on prices than long-term fundamentals over the short term. This is a vital aspect of market psychology for any crypto investor to understand. Before anyone searches for where to buy bitcoin near me, think about this. It’s important to understand whether the bull or the bear is the currently-active animal spirit in the overall crypto market.
To be clear, a bull market is when times are good and asset prices are rising. A bear market is when prices are falling month after month. More specifically, a market go bear once the decline is by 20% or more. However, this is not an exact science when it comes to the crypto market. It’s still early days and price swings of 20% or more are still rather common. For the most part, investors are usually bullish because the long term trend is for assets to become more valuable over time as the effectincy, productivity, and general size of the economy grows over time. That said, bear markets definitely still take hold of the economy and even small subsections of the economy from time to time.
Bull and bear markets are obviously the complete opposites of each other. They also share some similarities when it comes to their underlying causes and characteristics. In particular, market psychology plays a key role in both types of market conditions. And these underlying thoughts and emotions of market participants can compound the current reality of the changing economic environment. Once the market has fallen by a certain amount, other investors will also sell their assets because they’re unsure of when the drop will end.
This has the side effect of bringing prices even lower and creating even more uncertainty regarding when the pain will end. This compounding cause and effect between market prices and the psychology of asset holders can create a downward spiral and paint a picture of the economy that is much worse than reality. Of course, the same psychological dynamics are at play in bull markets as well. As asset prices continue to rise at rapid rates, more people sitting on the sidelines will give into their feelings of FOMO (fear of missing out) and feel like they must get into the market as soon as possible. After all, who wants to be the only one in their friend group who isn’t getting rich?
While there were also booms and busts in the earliest days of bitcoin, it is generally to accept that there have been three major boom and busts (bull and bear) cycles in the crypto market up to this point. And each full market cycle had its own characteristics when it comes to the reasons people were either buying out of greed or selling out of fear. 2013 was when bitcoin hit the mainstream for the first time, and there really wasn’t much of an alternative crypto asset market at the time.
The underlying use case of bitcoin as a censorship-resistant medium of exchange had been illustrated via Silk Road and Wikileaks, and the censorship-resistant store of value was clearly illustrated by the bank bail-ins in Cyprus. Near the end of 2013, things really started to get out of control as the price ran up to over $1,000 for the first time. At that point, China threw water on the flames by putting out a number of statements regarding potential various aspects of the booming bitcoin industry. Eventually, bitcoin exchange Mt. Gox, which accounted for the vast majority of trading at the time, announced that it was insolvent. At that point, it became unclear if the bitcoin market was ever going to recover. This is a common theme at the bottom of a bear market.
By 2017, activity on alternative blockchain Ethereum began to flourish. This is especially in terms of the many initial coin offerings (ICOs) that were popular at the time. Eventually, the bitcoin price would run up to nearly $20,000 before quickly falling to roughly half that amount. By the end of 2018, bitcoin was trading below $4,000 again. It would also trade below that price once COVID-19 was declared a pandemic by the World Health Organization.
Ethereum also came back with use cases of its own in the form of decentralized finance (DeFi), NFTs, and stablecoins. The market eventually peaked at a new all-time high of around $69,000 in the fall of 2021. However, things have now settled down once again to the $20,000 level. All of these bull and bear markets had their own key talking points. It’s extremely difficult to predict exactly when the tides will turn. For that reason, one should not worry about trying to time the market when looking for where to buy bitcoin near me.
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