What Are Bull and Bear Markets? How to Identify Market Cycles

Crypto Basics

27 February 2026

100

When you first encounter cryptocurrency, the two terms you'll hear most often are probably "bull market" and "bear market." Some people say it's a big bull market, get in now; others shout that the bear is coming, run away. Beginners are often left confused—what exactly are bull and bear markets? How do they form? More importantly, how do I know which stage we're currently in? This article will break down these two core concepts in the simplest language, combined with the latest market data from 2026, and teach you a practical set of judgment methods.

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The Origin of Bull and Bear

Before diving into the analysis, let's touch on an interesting topic: why specifically bulls and bears, and not other animals?

The most widely accepted explanation comes from the attack methods of these two animals: a bull thrusts its horns upward when attacking, symbolizing rising prices; a bear swipes its claws downward when attacking, representing falling prices. Near the New York Stock Exchange stands a famous bronze bull sculpture, which has become a symbol of financial market prosperity and optimism.

There's also a historical origin: the old proverb "Don't sell the bear's skin before you've caught it" became the origin of the term "bear market" in finance, while "bull market" was adopted as its counterpart. Regardless of the origin, these two terms have become an indispensable part of global investment culture.

What is a Bull Market?

A bull market, simply put, is a state of sustained price increases in financial markets. In market convention, a rise or fall of 20% or more in major indices is typically used as the technical criterion for defining a bull or bear market.

In a bull market, you'll notice these characteristics:

Widespread investor optimism, with a strong willingness to buy
Asset prices continuously rise, accompanied by increasing trading volume
Favorable macroeconomic conditions, with strong indicators like employment rates, consumer spending, and corporate profits
Continuous capital inflow, with new investors entering the market

The power of a bull market comes not just from prices themselves; it also creates a "wealth effect": as asset values rise, consumer and investor confidence gradually strengthens. This confidence translates into higher spending, driving further economic expansion, thereby sustaining the bull market.

What is a Bear Market?

A bear market is the opposite of a bull market, representing a state of sustained price declines in financial markets. Technically defined as a drop of 20% or more in major indices, its impact goes far beyond this numerical value.

Typical characteristics of a bear market include:

Low investor confidence, with a strong risk-off sentiment
Widespread asset selling, with continuous capital outflow
Shrinking corporate profits, weakening economic indicators
Panic spreading, with selling exacerbating declines, creating a negative feedback loop

The destructive power of a bear market should not be underestimated. During the Great Recession of 2008-2009, market values plummeted by over 50%; during the Great Depression, stock prices collapsed by a staggering 83%. However, it's worth noting that historical data shows bear markets typically last shorter than bull markets—averaging only about 10 months, while bull markets last nearly three years on average.

Is the Market Entering a Bear Market in 2026?

To determine the current market state, we need to look at specific data. As of early 2026, Bitcoin has experienced a significant pullback from its previous high, with an overall decline of over 40%. Major assets like Ethereum have also seen clear corrections. From a technical perspective, the market has entered a typical retracement cycle.

Price Level: Bitcoin has fallen from its all-time high of $127,000 in October last year to around $68,000 currently, a decline of nearly 50%. Ethereum has also dropped from its all-time high of $4,955 to around $2,046, a decline of over 58%. Technically, this fully meets the 20% decline criterion for a bear market.

Technical Signals: Michael Boutros, Senior Technical Strategist at StoneX, points out that Bitcoin has entered oversold territory on the weekly chart for the first time since mid-2022. However, historical experience suggests that such oversold signals often appear in the early stages of a decline rather than at the bottom—historically, Bitcoin's maximum drawdown in major bear market cycles has typically been between 70% and 85%. In terms of time, the current decline has only lasted about 17 weeks, whereas historical bear markets have averaged over 50 weeks.

Capital Flows: Research from DWF Labs shows that as of February 23, the total cryptocurrency market cap has fallen below $2.22 trillion, returning to levels seen before the November 2024 election. USDT, issued by Tether, is facing its largest monthly decline since 2022, having decreased by over $1.5 billion so far in February.

Market Sentiment: According to the Crypto Fear & Greed Index released by Alternative.me, it scored 5 (out of 100) on February 23, placing it in the "Extreme Fear" zone.

Combining the above data, the crypto market in February 2026 is undoubtedly in a bear market cycle. Some research institutions believe this is not a traditional "full-blown crash-style bear market" but rather a period of structural adjustment.

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Bull-Bear Transition Signals

So, as an ordinary investor, how do you determine which phase the market is in? I've summarized a "Five-Step Judgment Method":

Step One: Look at Price Trends

The simplest indicator: Has the leading coin retraced more than 20% from its high, with weak rebound attempts? If yes, it's likely entered a bear market. Conversely, if prices are continuously making new highs with limited pullbacks, it's a bull market.

Step Two: Look at Trading Volume

A bull market requires volume confirmation—prices rising with increasing volume and declining on pullbacks is a healthy bull market characteristic. In a bear market, rebounds are often on low volume, while declines occur on high volume, indicating heavy selling pressure.

Step Three: Look at Capital Flows

Pay attention to changes in the total supply of stablecoins. When stablecoins like USDT and USDC are continuously being issued, it usually means capital is preparing to enter the market. Conversely, if stablecoins are being burned or flowing out of exchanges, it indicates capital is leaving. Currently, USDT is experiencing large-scale outflows, a bear market signal.

Step Four: Look at Market Sentiment

The Fear & Greed Index is a useful auxiliary tool. When the index is persistently in "Extreme Fear" (below 25), it often corresponds to market bottom zones. When the index is persistently in "Extreme Greed" (above 75), it often corresponds to market tops.

Step Five: Look at Institutional Moves

In the 2026 market environment, institutions have become a significant pricing force. Monitor the capital flows into Bitcoin spot ETFs and the position changes of institutions like MicroStrategy. These data can reflect the true attitude of "smart money".

From a macro perspective, bull-bear transitions are often linked to global liquidity cycles. When interest rates fall and monetary policy is loose, risk assets are more likely to enter a bull market. When liquidity tightens, risk assets often come under pressure.

Investment Strategies for Bull and Bear Phases

Understanding bull and bear markets is one thing, but adopting the correct strategy is even more critical:

Strategy Dimension	Bull Market Strategy	Bear Market Strategy
Position Management	Maintain higher positions to ride the uptrend	Reduce positions, increase cash/stablecoin ratio
Buying Method	Can chase rallies appropriately, but take profits in batches	Use dollar-cost averaging, build positions in batches during declines
Holdings Variety	Can allocate some altcoins for excess returns	Focus on core assets like Bitcoin and Ethereum
Risk Control	Use trailing stop-losses to protect profits	Strict stop-losses to avoid deep losses
Trading Frequency	Reduce operations, "buy and hold"	Can do some swing trading, but requires precise timing

It's important to emphasize that for true long-term investors, the distinction between bull and bear markets isn't that critical; what matters is maintaining disciplined investment behavior. History proves that the long-term trend of stock markets and crypto markets has always been upward. Over decades, the fluctuations of bull-bear cycles tend to smooth out.

Cyclical Trend Changes in 2026

Finally, I want to specifically highlight an important change in 2026: the traditional "four-year bull-bear cycle" model is losing its explanatory power.

Huobi Growth Academy pointed out in an in-depth report that entering 2026, the crypto market is undergoing a profound structural transformation. The market no longer rises and falls in unison around a single narrative; instead, different types of assets are priced independently in their respective phases.

Why is this happening?

Institutional capital becomes the marginal pricing force: They aim for long-term allocation and risk hedging, not chasing extreme volatility, and instead absorb liquidity during downturns
Divergence in asset logic: Bitcoin is increasingly seen as a reserve tool, stablecoins become financial infrastructure, and some application assets are starting to be priced based on cash flow
RWA and stablecoins connect to real-world finance: For the first time, the crypto market has income sources linked to the real economy

This means that in the future, we may no longer be able to define the entire market simply as a "bull market" or "bear market," but will need to learn to identify the structural phase of different assets.

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Summary

Understanding bull and bear cycles is the first lesson in crypto investing. But true investment success doesn't lie in accurately predicting every turning point; it lies in maintaining consistent investment discipline under various market conditions.

Truly mature investors are not those who get excited in bull markets and panic in bear markets, but those who understand the existence of cycles and adjust their risk exposure accordingly in different phases.

The market won't change because of our emotions, but we can change our outcomes by understanding the cycles.