It’s difficult to hold your nerve as crypto assets print double-digit losses. But don’t bury your head in the sand; follow these simple steps and make the most of this bear market opportunity.
A bear market is a period of economic downturn following a period of increased gains, also called a bull run or bull market. Bear markets often happen across the globe across different financial markets at once. This type of event extends to cryptocurrency, and with the volatility of some coins, a bear market can be a terrifying event that triggers the end of some assets altogether.
There is another similar event to bear markets, referred to as market corrections. Usually, if the decline lasts longer than two months, then it’s a bear market. Shorter is a market correction, where a coin’s worth is reassessed by investors. In addition, bear markets usually see a coin lose 20% or more of its value. Successful or popular projects could survive a bear market, but part of the significant risk in historical crypto bear markets is that trends change, and some projects never recover. However, as with any significant market event, there is an opportunity. Here are some things you can do in a crypto bear market:
The first thing you should do in any downturn is take some time to understand why a bear market is happening in the first place. A couple of things could trigger a bear market. One of which is a global decline in the economy, such as a period of recession where the global economy is in a period of correction.
Another thing that could trigger a bear market is a black swan event that could trigger a massive selloff during a period of rapidly increasing volatility. The initial global shutdown due to the COVID-19 pandemic is an excellent example of this phenomenon, though it only lasted a few months. In the crypto market, black swan events could trigger a more prolonged bear market or a period of pessimism in the cryptocurrency news cycle. Crypto black swan events often have a domino effect, with one major event triggering a series of bad events.
Another common cause of bear market periods is investors’ general pessimism about a cryptocurrency or cryptocurrency in general. More prominent investors may begin to sell their share of a coin, which may lead other pessimistic investors to sell as well, leading to a downwards trend. If a big enough coin loses a lot of value because of this, such as Bitcoin or Ethereum, it could trigger a market-wide downturn.
The cryptocurrency market has, historically, been very predictable. Bitcoin has a maximum supply of only 21 million, and the mining rewards are cut in half every four years to make the asset deflationary. The halving triggered cryptocurrency bull runs in the past, leading to a year-long parabolic market increase followed by a sharp downturn until the next halving.
The most recent parabolic run and downturn occurred in 2021, with the next halving expected to come in 2024. If Bitcoin—and therefore the rest of the crypto market—continues to operate according to this schedule, we could expect the next bull run to come just after the 2024 halving event.
The most important thing you can do during what may be or become a bear market is to educate yourself on the circumstances of the market trend. If little negative news exists around the currency, then it may just be a market correction. However, if there is a general pessimistic atmosphere expressed on social media, then the trend may become a bear market.
Do your research and judge the viability of a cryptocurrency by the general sentiment of the community and the words of those that run the cryptocurrency itself. During this time, see if any other cryptocurrencies are being spoken of highly and do your own research into every new project you ear about.
If the coin has utility or a genuine community behind it, that’s a good sign that it could return from a correction or outlast a full bear market. If a coin is trending in the news and on social media but offers little to no utility, it may be a meme coin or a pump and dump scheme.
As with any market trend, there is a way to end up in a better stance after the trend ends. This applies to bear markets in crypto as well. Consider buying in when the cost has lowered, often referred to as ‘buying the dip.’ If you have a total investment you’re willing to spend, consider spending in small portions at a time to even out the chances of investing at a worse time. This is called dollar cost averaging into an investment. It’s a great way to get into an investment at different prices, usually helping you get more for your money.
Diversify your investments as well, even in crypto. Sometimes cryptocurrencies, just like stocks, can fail. Spread your assets to avoid losing a significant portion of your wealth during a bear market if an asset you were investing in never returns to its bull market highs. Spread your investments over a set of projects that you really believe in, but avoid spreading yourself so thin that you can’t keep track of news about those projects to catch a high or low.
An investment that will always pay off is an investment in yourself.
Instead of focusing on how much the markets have fallen, try to use this period to research. Time spent learning, either about cryptocurrency in general, or individual cryptos in particular, is never wasted. If there’s a particular aspect of cryptocurrency you’d like to learn more about, that would be an excellent starting point. Perhaps you’d like to learn how to invest better so you can handle risk differently in future.
Instead of staying isolated during a market downturn, take the opportunity to stay engaged in your preferred crypto communities. You’ll connect with other community members who see value where you see it and can exchange ideas or knowledge.
Most importantly, the best thing you can do for your investments is to keep calm and never trade with emotion. You can sell at the worst opportunity and lose a significant portion of your investments or buy when the asset is at a high out of fear that you could miss it going higher. This usually happens when you trade with emotion and not logic.
Keep calm, and learn how to manage the risk of trading cryptocurrency during a bear market. Greed is a powerful emotion, and learning how best to manage the sense of reclaiming your wealth is one of the most powerful tools you can have as an investor. This extends enormously to crypto with its volatility, meaning that you can end up in a much worse situation by selling rather than sticking it through—or the opposite, assuming it will keep going up after reaching the top.
Cryptocurrencies are a volatile investment but a navigable one. If you do the necessary research, you can broaden your investments, avoid losing significant portions of your net worth and see excellent returns. Knowing what to do, applying those skills, and not freaking out are the most essential skills for any crypto enthusiast.
Disclaimer: This blog post is for informational purposes only and is not meant to be taken as financial advice.