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What Is a Bull Run?

February 24, 2022

Christina

What Is a Bull Run?

A bull run, otherwise known as a bull market, is characterized by a sustained or significant period of growth in any given market.

From equities and forex to real estate and cryptocurrency, markets are broadly described in one of two ways: either as a bull or bear market.

Characteristics of a Bull Market

A bull market is one that is on the rise, in which momentum and market sentiment are strong, and the price of the assets in question is incrementing. If you visually think of a bull market, bulls are strong and confident, charging toward an attack. Bulls also attack with their horns in an upward motion, reflecting a rising market's movement.

[Read now: What Is a Bear Market?]

Most assets, particularly risk assets such as equities or cryptocurrencies, experience daily periods of volatility, meaning that prices go up and down. It is not uncommon for asset classes to experience strong days while being in a bear market or, conversely, shed some percentage points while being in a wider bull market trend. 

The terms, then, are reserved for describing a longer trend of activity or substantially large price movements. Generally, an upward or downward swing of at least 20% is used as the gauge to suggest that a market has turned "bullish" (or "bearish"). 

Another characteristic of bull markets is that there are many buyers. Both confidence and demand are high. A sudden uptick in price may signal that market participants have become bullish about the prospects of the price increasing further. When investors believe that prices will rise, they are known as bulls. 

Some of the most vocal Bitcoin bulls are Max Keiser, Michael Saylor, Barry Silbert, and Tyler and Cameron Winklevoss. Even when Bitcoin takes a turn for the worse, they continue to vocally evangelize its long-term potential and notable qualities as sound money against a rapidly depreciating US dollar.

All markets are influenced by external factors and human psychology. When macroeconomic factors are favorable, confidence increases, leading to more buyers, a rising price, and a positive feedback loop that keeps a bull market in full swing. These factors can quickly change, and investors should always be aware that no bull run will continue without end.

Notable bull markets in Bitcoin's short history were in 2013, 2017, and 2021. Although each bull run has displayed different characteristics, reflecting Bitcoin's maturity, the state of the network, and the different types of market participants, each bull market has occurred six to 18 months after a Bitcoin halving

How to spot the end of a Bull Market

Because markets are sensitive to external factors such as geopolitics, regulation, rumors, and events, there will be continued fluctuations during a bull market. This can make it hard to spot the end of a bull run. Movement to the downside is often merely a market correction during a wider bull run and an opportune moment to accumulate more of the asset. Investors typically refer to this as "buying the dip."

Sudden unexpected events, such as the outbreak of the COVID-19 pandemic or a China ban on cryptocurrency, can cause a sharp downturn in prices that knocks investor confidence. This leads to a downward spiral of panic selling, contagion, and fear that causes the end of the bull run. In other cases, the end may not be triggered by one event, but a series of events or a slower dwindle of momentum. 

Technical analysts use various different tools and charts to plot the movement of an asset like Bitcoin. Some telling indicators of the end of a bull market include a series of lower highs and higher lows in price and a decline in what is known as the Relative Strength Index (RSI). This shows that the asset could have reached oversold or overbought conditions and provide early signals that a reversal may be imminent.

As prominent Bitcoin analyst Blan B questioned on Jan 30: "Will RSI drop below 50 (indicating downward momentum and start of a bear market), or will RSI stay above 50 and rise again, because at the peak in 2021 RSI did barely go above 90 as well (no high peak = no extreme low)."

Other analysts use "on-chain data" to track movements in Bitcoin. On-chain data displays all the information around transactions and can give clues as to who is buying and selling. A continued selling trend from large market participants known as "whales," selling from miners, or a decline in the hash rate can often signal that a bull market is coming to an end. 

Are we in a Bull or Bear Market?

Following a very bad start to the year (Bitcoin is down almost 45% since its November high in 2021), many people are asking whether we are in a bull or bear market. While the initial price action doesn't look good, the jury is still out on this decision, as we could be witnessing a normal market pullback.

Historically, however, Bitcoin has declined in the third year after every halving (or approximately every four years). This leads many people to believe that Bitcoin is following its natural pattern and the bear market has begun. 

Yet, this argument is repeatedly disputed now that the marketplace has changed significantly. The institutionalization of Bitcoin has changed its behavior, and it now trades much more in line with US equities as a risk-on asset.

Rather than being in a bull run or a bear cycle, then, we could have progressed to what some are calling the Bitcoin "supercycle" which is characterized by less volatility and means that Bitcoin's highs won't be succeeded by the 80-90% drawdowns we have witnessed in previous cycles. 

Certainly, the coming weeks and months will be interesting for Bitcoin and the digital assets market at large. Positive events, such as the approval of a spot Bitcoin ETF or Ethereum's switch to Proof of Stake, could trigger a massive price movement to the upside and reclaim bullish territory. Conversely, strict regulation of cryptocurrencies or attempts to ban Bitcoin mining could help compound the downward trend.



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