10 Bear Market Terms You Should Know
Welcome to our “Do You Speak Crypto?” series!
At DIFX, we’re constantly looking for ways to raise awareness and improve knowledge within the crypto industry to lower the barriers to entry and drive mass adoption. Therefore, we’ve prepared a series of articles for you in which we’ll discuss common terms in different sections of the blockchain and crypto industry together.
Episode 11: Bear Market Terms
Bear markets are one of the inevitable parts of the financial world. In a bear market, the market sentiment is quite negative while prices drop consistently. The US stock market has officially entered a bear market recently, with the crypto market joining the party not long after.
In this episode of the “Do You Speak Crypto?” series, we have covered 10 common terms of bear markets which you may frequently notice these days as you scroll through your daily news.
1. Bearish Sentiment
During a bear market, the market sentiment can turn gloomy while sellers (bears) take control of the market. Bearish sentiment, therefore, refers to the overall negative mood of investors and traders as prices continue their decline.
2. Flash Crash
A market event in which a considerable number of holders decide to sell their assets, causing a sharp, sudden and deep decline in the price. In today’s digital markets, trading bots and algorithms are mainly responsible for flash crashes as they work based on specific market benchmarks.
The price decline may trigger other bots to start selling which can cause a ripple effect, sharpening the crash even further.
3. Capitulation
Describes a situation in which a large number of investors give up on an asset and start selling their holdings over a short period of time. This can result in a sudden drop in prices.
4. Weak Hands
Traders or investors who don’t stick by their strategies or simply aren’t able to do so as they don’t have access to the required resources.
5. Panic Selling
Panic selling is the result of increased fear and uncertainty within the market which is usually triggered by an outside event or news. As investors and traders continue selling their assets out of fear, a domino effect is created, further sharpening the price fall.
6. Sell-off
Sell-offs happen when the majority members of s specific asset decide to sell their holdings which can lead to a sharp decrease in price. Negative events and reports can trigger sell-offs.
7. Going Short
Short Selling or Going Short is a way for traders and investors to profit from falling market prices in which they can sell an asset they don’t really own.
Consider this scenario: you believe that the price of a specific asset will drop in the near future. To take benefit from the market, you borrow some of that asset from your broker and sell it at the current market price. If everything goes as you’ve predicted, the market price will drop and you can buy back the borrowed assets at a lower price, give it back to the broker, and keep the difference for yourself.
Shorting may sound simple but it tends to get complicated and is recommended to advanced traders and investors only.
8. Put Options
Put options are another way for market members to benefit from decreasing prices. As a put option owner, you have the option to sell the underlying asset at a predetermined price within a specific period of time.
9. Short Squeeze
In the previous scenario, imagine the price going up instead of down. This would force you to buy the asset back at a higher price as you are obligated to give it back to the lender.
A short squeeze happens when many short-sellers are pushed to buy back the borrowed asset to cover their losses which will drive the price even higher.
10. Buy the Dips
Market members use this phrase when they believe the price fall is actually a good opportunity to buy the asset as it will appreciate in value in the future.
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Disclaimer
DIFX shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee, or implication by DIFX that the forecast information will eventuate, that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses in particular if the conditions or assumptions used for the forecast or mentioned in the analysis do not eventuate as anticipated and the forecast is not realized.
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