A bear market is a sustained period in which prices in a financial market fall and investors expect further losses. It can describe a whole market, such as a stock market index, or a single asset such as Bitcoin (BTC). In a bear market sellers dominate, rallies tend to fade and confidence is low.
The opposite condition is a bull market, and traders who expect falls are described as bearish. There is no legal definition. The usual rule of thumb in US equity markets, repeated by the Securities and Exchange Commission's investor education site, is a decline of 20% or more in a broad index, sustained over at least two months. A smaller fall of 10% to 20% is usually called a correction. In crypto, a long bear market is often called a "crypto winter".
Bear market in plain terms
Imagine a neighbourhood where house prices have started to slip. A few owners sell early to avoid losing more, which pushes prices lower, which makes more owners nervous. Buyers hold back because they expect a better deal next month. Nothing is broken about the houses themselves, but the mood has turned.
A bear market is that mood spread across a whole market. Prices do not fall every day, and there are hopeful weeks along the way, but over months the general direction is down and each recovery runs out of steam below the previous high.
Where the 20% convention comes from
The 20% threshold is a journalistic and industry convention, not a rule set by any regulator or exchange. It became standard in US financial media in the second half of the twentieth century because it gave a simple way to separate ordinary pullbacks from serious declines. Like any round number, it is arbitrary: a 19% fall is no less painful than a 21% fall, and providers differ on whether to use closing or intraday prices.
The animal names are older. The word "bear" is commonly traced to eighteenth-century London, where dealers who sold stock they did not yet own were called "bearskin jobbers", after the proverb about selling the bear's skin before catching the bear. The "bull" appears to have been adopted as its opposite. Popular explanations about a bear swiping its paws down and a bull thrusting its horns up are later and are best treated as memory aids.
Notable bear markets
In US equities, the S&P 500 fell by more than half between October 2007 and March 2009 during the 2008 financial crisis. In February and March 2020 it fell more than 30% in roughly a month as the Covid-19 pandemic spread, one of the fastest bear markets on record, before recovering within the year. In 2022 the index entered a bear market again as central banks raised interest rates sharply to fight inflation.
Crypto bear markets have been much deeper. After peaking near $20,000 in December 2017, Bitcoin fell to roughly $3,200 a year later, a decline of over 80%, as the initial coin offering (ICO) boom collapsed. After a peak of about $69,000 in November 2021, it fell below $16,000 in November 2022. That decline was accelerated by a chain of failures: the collapse of the Terra algorithmic stablecoin in May 2022, the bankruptcy of crypto lender Celsius in July and the collapse of the exchange FTX in November. Smaller tokens often lost more than 90% of their value, and many reached a new all-time low (ATL).
How bear markets behave
Bear markets tend to share several features:
- Sharp counter-rallies. Short, strong rises are common inside falling markets; a recovery that fails is often called a dead cat bounce.
- Forced selling. Investors using leverage face margin calls and forced liquidation, which adds to the selling.
- Flight to safety. Money moves from risk-on assets into cash, government bonds and, in crypto, stablecoins.
- Falling activity. Trading volume, new token launches and on-chain usage measures such as daily active addresses usually decline.
Bear markets in shares often, but not always, accompany a recession; markets sometimes fall in anticipation of a downturn that never arrives. In crypto, traders' slang captures the experience: holders left with heavy losses are called bagholders, wiped-out traders are "rekt", and negative rumours are dismissed as FUD.
Limitations of the label
Like a bull market, a bear market is identified in hindsight. Its end is conventionally dated to the lowest point, which is only known once prices have recovered. The label says nothing about when a decline will stop, and buying during a fall in the hope of catching the bottom (often written BTFD) can mean buying repeatedly into further losses. Long-term holders who simply HODL through a bear market have, in Bitcoin's case, eventually seen a new all-time high (ATH), but past recoveries do not guarantee future ones, and many individual tokens never recovered at all.