A bull market is a market condition that is characterized by rising prices and increased optimism. This usually occurs in connection with an economic expansion. Investors will sense that there is a “rising tide,” which lifts all boats. Rising stock prices create consumer spending, which creates jobs and income, which creates more consumer spending.

Investing in bull markets is usually relatively easy, as investment returns are typically positive and significant. However, periods of extremely strong gains can often be followed by quick drops in prices as well. Furthermore, buying assets during a bull market can lead to heavily overvalued prices relative to the fundamentals of the asset.

Bull markets can be one of the trickiest financial trends to anticipate, especially with the way they can change at a moment's notice. Bulls are only half as strong when they go head-to-head against bears, so it's important you keep your wits about you.

A bear market refers to a downward market trend. It is marked by a general decline in prices over time and is commonly dominated by selling. A bear market is typically created by widespread pessimism, in which investors are constantly trying to get rid of or sell their assets in order to prevent any further loss. Compared to traditional markets, with things like stocks, shares, and fiat currency, cryptocurrency markets are much smaller and highly volatile. For example, it is not unusual to see price drops of 75% right before a major bull run. Also, prices can drop by 85% in what is typically known as “crypto bear markets”

Bull markets are often characterized by rising prices that create a positive market sentiment (i.e. greed), and as traders feel more confident to invest, they are willing to overpay for securities. Owing to this self-reinforcing effect, bull markets tend to be more pronounced and often last longer than bear markets which typically receive less enthusiasm for trading.

While no one knows exactly what causes market booms, it is believed that they usually coincide with economic cycles and typically consist of four phases: expansion, peak, contraction, and trough. Some say that bull markets are linked to global economic factors like GDP, money supply, and interest rates in traditional economies.

Digital asset markets have historically been volatile — but still go through bull and bear market cycles like any other assets. The last major bull run in digital assets was during the ICO craze of 2017, followed by a multi-year bear market. Earlier this year, we experienced a strong bull trend. However, a more bearish cycle has emerged as investors have taken profits with more focus on risk mitigation for their portfolios. In addition, there has been public uncertainty about digital assets — even with major corporations like Tesla and Grayrock adding digital assets to their balance sheets.

Ultimately, the strength of a market ultimately depends on the health of its underlying economy. This is why market cycles are both necessary and important in identifying economic trends. It helps us understand what drives asset values. The upswings and downswings help establish where the baseline valuations should be relative to our historical observations. And at the end of the day, that’s what makes markets flourish: making sure that valuation is a key component of keeping our economy and financial system running smoothly.