What is a Bull Run ? Understanding the soaring prices of financial markets and cryptocurrencies
In the world of investing, particularly cryptocurrencies, the term " bull run " is frequently used to describe periods of dramatic market surges. But what exactly is a bull run ? This article will explore bull run , their impact on markets, and strategies for capitalizing on them. Whether you're a beginner or an experienced investor, understanding cyclical dynamics to anticipate a bull run is crucial.
Table of contents
Definition of a Bull Run
What is a bull run ? A bull run is a period during which asset prices rise steadily over a prolonged period. This phenomenon, generally accompanied by increasing investor optimism, is the opposite of a bear market , a period of prolonged market decline. In a bull run , confidence is high, and investors are inclined to buy, anticipating future gains.
Understanding Market Cycles
Financial markets, including cryptocurrencies, follow cycles marked by periods of expansion and contraction. The "Wall St. Cheat Sheet" chart illustrates these cycles and the emotions that accompany them: from hope to capitulation, and finally to denial and depression. These cycles influence price dynamics and provide benchmarks for anticipating market trends.
The Phases of the Market Cycle
Historically, each market cycle has been divided into several phases:
- Hope and Optimism : The first signs of recovery after a period of decline. Investors are beginning to believe in the possibility of future gains.
- Excitement and Euphoria : This is where the bull run reaches its peak. Prices rise rapidly and everyone wants to get into the market.
- Complacency : Investors believe that gains will continue without interruption.
- Fear, Panic, and Capitulation : When prices start to fall, doubt sets in, and many sell to limit losses.
These different phases are essential for understanding the market's ups and downs. Investing requires knowing which phase you're in in order to fully benefit from a bull run .
The Bull Run in the Context of Cryptocurrencies
Cryptocurrencies are particularly prone to bull run , largely because the market is still young and constantly evolving. New people discover this ecosystem regularly, bringing fresh liquidity with each cycle.
This influx of capital, driven by the growing appeal of these innovative technologies, contributes to periods of rapid price increases. Unlike traditional financial markets, cryptocurrencies attract numerous investors seeking quick profits, further amplifying price movements.
For example, some recent projects, particularly in decentralized finance ( DeFi ) or NFTs , can sometimes emerge quickly and trigger bull run .
However, identifying these promising projects requires careful monitoring and a thorough understanding of the market: they remain rare and subject to high volatility. The lower a cryptocurrency's market capitalization, the higher the risk.
Why does a Bull Run occur?
Several factors can trigger a bull run :
- Technological innovation : The launch of new projects or technologies attracts attention.
- Growing adoption : When large companies or governments show an interest in blockchain, it can generate a surge in popularity.
- Economic context : Favorable monetary policies or the election of a particularly pro-crypto presidential candidate can boost investor confidence and lead to a bull run .
In cryptocurrencies, the halving (reduction of the mining reward for Bitcoin) has historically always been followed by the appearance of a bull run several months later.
The Importance of the Halving in the Crypto Cycle
The halving is a Bitcoin-specific event that occurs approximately every four years. By reducing the issuance of new bitcoins, the halving limits the supply, which can cause a price increase if demand remains high. Historically, halvings have preceded bull run, making this event particularly closely watched by investors.
Risks and Opportunities During a Bull Run
A bull run is by definition very attractive, but it's not without risk. Increased volatility means that prices can rise rapidly, but also fall sharply—this is known as a bear market . However, for well-prepared investors, these periods can offer opportunities for significant gains. With a good understanding of the market, one can profit from rising prices while limiting exposure to potential downturns.
Fear of Missing Out (FOMO) and Bull Run
The fear of missing out The fear of missing out ( FOMO ) is particularly prevalent during bull run . Seeing prices rise can prompt buying out of fear of missing out on significant gains, even if prices are already very high. This fear of missing out is one of the driving forces behind bull run . This emotion, while natural, can lead to hasty decisions. It is crucial to remain calm and remember that bull run are not endless and are followed by corrections.
Bull Run and Total Value Locked (TVL)
In DeFi, Total Value Locked ( TVL ) represents the sum of assets locked in protocols. During a bull run , TVL tends to increase as more investors place their assets in these protocols. TVL is an indicator of a protocol's health within the DeFi ecosystem, reflecting investor confidence and commitment.
Tips for Investing During a Bull Run
Investing during a bull run requires a disciplined approach. Here are some example strategies:
- DCA (Dollar-Cost Averaging) : Investing fixed amounts at regular intervals to smooth out price fluctuations.
- Take profits gradually : Don't hesitate to secure part of the gains by selling gradually, this is called DCA OUT .
- Set sell targets : For each of your positions, you can set 3 sell targets with different percentages of the position sold at each target. You can estimate these targets based on bull run and your conviction in the project you're investing in.
- Diversification : Don't put all your eggs in one basket with a single crypto, but spread your investments to reduce risk.
These strategies can help maximize gains while limiting the risks associated with sudden corrections.
3-Tier Sales Strategy
Here is an example of a three-stage Bitcoin selling strategy, allowing you to take profits gradually at predefined price levels, while keeping part of your position to profit from potential subsequent increases.
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First Tier: €93,000
- Objective: Sell 25% of your total Bitcoin position.
- Assuming you hold 1 BTC, you will therefore sell 0.25 BTC when the price reaches €93,000.
- This first sale allows you to recover part of your initial investment and take profits, while retaining a good part of your position in case the rise continues.
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Second Tier: €114,000
- Objective: Sell 50% of what you have left after the first milestone.
- After the first sale, you have 0.75 BTCremaining. You will therefore sell 0.375 BTC at this level.
- This step allows you to secure additional gains while still having a portion of your investment to benefit from future increases.
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Third Tier: €145,000
- Objective: To sell 100% of the remaining position.
- After the first two sales, you have 0.375 BTCleft. You sell this remaining share when Bitcoin reaches €145,000.
- This final sale allows you to realize the final profits on your position.
Advantages of this strategy
- Gradual securing of profits throughout the ascent.
- Reduced exposure to risk in the event of a sudden correction after each sales level.
- Flexibility to adjust the strategy if the market evolves differently than forecast.
This type of strategy is particularly useful in a volatile market like that of cryptocurrencies, where rapid rises can be followed by significant corrections.
Conclusion and Preparation for the Next Bull Run
Understanding what a bull run is and how it fits into market cycles is essential for any cryptocurrency investor. By learning to recognize the warning signs and adopting prudent investment strategies, it's possible to profit from rising prices while minimizing losses. Stay informed, prepare, and anticipate the next bull run !
FAQ about Bull Run
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What is a bull run ?
- A bull run is a prolonged period of rising prices in the market, fueled by investor optimism.
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How does the halving influence bull run?
- The halving reduces the supply of bitcoins, which, combined with an increase in demand, has historically always been followed by a bull run several months later.
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What are the risks of a bull run ?
- bull runare often followed by corrections, resulting in losses for investors who buy at the peak.
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How to avoid FOMO during a bull run ?
- By following a disciplined investment strategy, such as DCA, and by diversifying one's portfolio .
By clicking on the bold words, discover our articles on FOMO , Total Value Locked ( TVL ) , and halving to deepen your understanding of the crypto ecosystem. These key concepts will allow you to navigate the world of cryptocurrencies more confidently and gain a better understanding of the market.
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Yoann
Training engineer, I quickly became interested in the field of finance. Convinced that decentralized finance has a bright future ahead of it, I participate in its democratization by developing Crypternon.
