Karuturg - When will market prices fall sharply

Bear markets occasionally occur when asset values gradually decline over a longer period. This situation is called a bear market, which typically lasts for months or even years. During this market phase, investor confidence diminishes, and pessimism prevails—this is a normal part of market cycles, with historical data showing that established markets like the S&P 500 and Bitcoin always recover from them.

Understanding the Nature of a Bear Market

A bear market involves longer-term price movements, not short-term volatility. Unlike a simple decline in day trading, a bear market reflects deeper economic problems—it may involve declining corporate profits, rising unemployment, and a general crisis of investor confidence.

In trading circles, a popular phrase is: “Up the stairs, down the elevator.” This aptly describes the dynamics of a bear market. When prices start falling, a rapid selling pressure emerges. Traders fear losses, others want to lock in gains, and this triggers a domino effect—one seller exiting the market prompts the next to do the same. If leverage is involved, large liquidations can make the decline even steeper, creating massive cheap sell-offs.

What Drives a Bear Market

Economic shocks are usually the main triggers of a bear market. For example, the 2008 financial crisis stemmed from real estate bubbles and reckless lending policies. Geopolitical uncertainty, wars, and trade disputes can also push investors toward safer assets like bonds and cash.

Rising interest rates, as happened in 2022, make borrowing more expensive and worsen economic outlooks. Unexpected crises—such as the COVID-19 pandemic in 2020—can simply cause panic and drive prices down. Often, a bear market results from a combination of factors that weaken market confidence simultaneously.

The Main Difference Between a Bear and a Bull Market

In a bull market, prices move upward; in a bear market, downward. But an important difference is the presence of consolidation periods—long stretches where prices move sideways or within a range, with low volatility and reduced trading activity. This behavior is common in bear markets because a declining trend does not present an attractive opportunity for most investors.

Observing Historical Examples of Bear Markets

Bitcoin has generally been in a bullish trend throughout its existence and is one of the best assets in financial history. However, even BTC has experienced several severe bear periods.

In December 2017, Bitcoin reached nearly $20,000, but the following years—2018-2019—brought a bear market where the price dropped over 84% from its peak.

In 2020, the decline was even sharper—more than 70%, especially severe in the first quarter when the COVID-19 outbreak shook markets. This was also the last time Bitcoin traded below $5,000.

2021 saw a new price surge, with Bitcoin reaching about $69,000. Then, in 2022, a threefold larger bear market occurred—a decline of over 77%, bringing the price below $15,600.

Possible Strategies During a Bear Market

Managing during a bear market requires discipline and good planning. Here are some main approaches:

Reducing Risk Positions

The simplest tactic is to sell assets during a bear market for stable assets like cash or stablecoins. If a price drop causes discomfort, it may be a sign that your position is too large.

Waiting and Holding (HODLing Strategy)

Sometimes, the best move is simply to wait. Historically, established assets like Bitcoin and the S&P 500 have always outperformed during bear markets and continued to grow. With a long-term investment horizon (years or decades), a bear market is not a signal to sell.

Dollar-Cost Averaging (DCA)

Many see bear markets as long-term buying opportunities, especially with strong assets. Regular investing regardless of current prices allows buying more when prices are low. For example: if you buy 1 BTC at $100,000 and it drops to $80,000, you can buy more at the lower price, bringing your average cost to around $90,000.

Short Selling and Hedging

Experienced traders use short-selling to profit from declines during bear markets. Shorting allows gains when prices fall. It can also serve as a hedge—for example, if you hold 2 BTC in your wallet, you can open short positions on 2 BTC to offset potential losses if the market continues downward.

Contrarian Trading (High Risk)

Some traders attempt quick rebounds during downtrends—so-called “bear market rallies” or “dead cat bounces.” These are highly volatile periods where a short-term rise may seem like a reversal. However, the risk is high—traders can get trapped in long positions during continued declines. Catching a falling knife is considered very risky and is often a psychological trap.

Why Is It Called a Bear Market?

The term “bear market” is inspired by the bear, which swipes downward with its paws—symbolizing a price decline. Conversely, a bull market is associated with a bull, whose horns point upward. These terms have been used since at least the 19th century. One theory suggests that “bear” comes from historical practices where traders sold leather contracts before they owned the hides—similar to short selling today.

Summary About Navigating a Bear Market

Bear markets are a normal part of market cycles, often triggered by economic, geopolitical, or speculative uncertainty. While they carry risks and discomfort, they also offer learning opportunities and potential gains.

With proper planning and discipline, traders can navigate and even profit during bear markets. Many simply hold their investments (HODL) or shift to lower-risk assets like bonds. Others apply dollar-cost averaging, which often works well in the long run. Short selling and contrarian trading require experience and courage but can be beneficial for seasoned traders.

It’s important to understand that a bear market is not the end but part of the financial journey. Historical data clearly shows: markets, including Bitcoin, always recover and continue to grow.