By Nathan Ferguson
Cryptocurrency bear markets can be challenging for investors and holders since they are typically accompanied by sustained, often significant losses for most digital assets. In less than three months, the value of Bitcoin has fallen almost half. Cryptocurrencies suffered, Stock indices fell, and macroeconomic indicators do not point to a simple recovery. Although the Crypto Market is in the midst of a bear market, there are still ways to survive and emerge stronger.
Market bears can present their own opportunities, and they are best suited for learning from mistakes, doing research, and preparing for when the market recovers. Taking the following eight steps will ensure you’re prepared for the next bear market and will help you maximize your return when it recovers. Please limit your use of this article to informational purposes only. Any material decision relating to the products or services described should be based on your research and analysis.
How Do Bear Markets Work?
However, bear markets are characterized by declining stock prices, and these prices are likely to continue to decline in the coming years. A bull market is marked by prices surging to new highs, but this is quite the opposite. Market movements are commonly compared to the activities of bulls and bears. These animals fight like each other. From below, bulls attack their victims and propel them upward with their mighty horns. On the other hand, the bear’s paws are used as weapons that are used to smack the opponent from above. Investors show little to no interest in investing during a bear market because they are pessimistic about the assets’ prospects. Investors are more inclined to sell their assets to avoid further losses, meaning pessimism only increases, and asset prices accordingly fall.
There are times when the bearish market dominates a single asset and sometimes even takes over the entire market. Market corrections, in contrast, are usually sharp and relatively short, while bear markets are generally more prolonged and more profound. In the early stages of a stock decline, it is impossible to predict when the bottom will come. Then, if stocks rise again, you wouldn’t profit from the rebound since you missed the opportunity to buy during a dip.
You may also see your new stock purchases decline if you are too eager to make your initial purchase. When a bear market erupts, it is difficult to determine the best timing and manage active trading. It is not a problem if the market drops by 10%. The majority of investors will be able to cope with the drop. A 78% correction is what makes most investors lose money. We saw this with the tech bubble bursting between 2000 and 2002 or the Dow Jones Industrial Average losing 54% between 2007 and 2009.
How to survive a crypto bear market?
When it comes to the duration of bear markets, they are unpredictable. There may be an extended period before the price of assets recovers to their original value after being devalued. A new uptrend phase begins before bulls return and markets must first endure a challenging period before they can survive. In such an event, there are ways you can protect yourself, and the following are some things that you can do. In a downturn of this kind, it is possible to make a profit, so do not ignore the possibility. Crypto investors can do a few things in times of market uncertainty, panic, and steep price decreases, among other things.
- Hodl, Hodl, Hodl
Our decisions are heavily influenced by human psychology. With the markets collapsing, losses mounting by the day, sometimes even by the hour, it is impossible to maintain a level head in the face of this. It is instinctive to sell assets that are falling in value before the situation worsens to preserve capital. Also, if we were investing in high-priced assets, we would do it from the same perspective: We wouldn’t want to miss a potential gain.
It is almost certain that markets will recover after going through a cycle. It has even been shown that they rise higher than ever before after a decline. Asset prices will increase to their original levels one day, and a bull market will return. As a result, if you sell assets after losing a significant amount of their value, returning to the capital you invested and accumulated would likely take more time and effort. Rather than checking price charts, it is best to stay calm, live your life, and let the time do its job.
- Lock or stake assets
You can do nothing when markets are falling, but cryptocurrency can help. Despite declining prices, they can still generate passive income. Several decentralized finance (Defi) projects allow you to create passive income from digital assets. Through staking, participants of many blockchains contribute to network stability, thereby earning additional cryptos. Several protocols also offer yields to provide liquidity to their liquidity pools, generate passive income, and compound interest on digital currencies during down markets.
- Short-Sell
Short-selling may be a good option if you want to be proactive during the bear market and feel confident about your trading skills. During bear markets, short-selling is a common strategy for making money. Through this short-term selling strategy, investors can profit by taking advantage of price drops. Market pessimism often leads short-sellers to prepare for further market declines when pessimistic sentiments dominate. As a result, they borrow assets at a fixed price, sell them immediately, and then repurchase them at a lower price before returning the purchases to the lender.
When an investor sells an asset, the difference between the selling and buying prices is considered a profit. Inexperienced investors, however, should avoid short-selling because it is a complex investment tool that requires extensive knowledge. Short squeezes may result in unpredictable losses if the market suddenly turns upwards instead of plummeting.
- Accumulate Assets
By increasing your holdings of digital assets, you can also take advantage of a bear market. Prices will fall along with the markets in times of bear markets. You can buy the same asset for less, which decreases your investment’s average cost over time. A simple and straightforward way to accumulate holdings during bear markets is to use dollar-cost averaging (DCA). Consistently investing money in a single asset over time is the idea behind this strategy.
Once the bulls replace the bears, prices will rise again as markets move in cycles. DCA enables investors to increase their portfolio at a lower average investment cost, recover more quickly, and generate higher profits when the market returns to positive territory. It lowers your risk of losses when markets decline by averaging your investments’ costs, but it does not entirely protect you. Losses will also increase due to the long-term decline of the market. The DCA does not protect you from poor investment choices either. Should an asset be doomed, you are out of luck. To find investments that have performed well over a long period, you should always conduct your research.
- Diversify Your Portfolio
It may sound paradoxical to seek new investment opportunities when suffering from loss and despair. It is impossible to predict which digital assets will recover the fastest and strongest because of thousands, including non-fungible tokens (NFTs). To balance investment risks, diversifying your crypto portfolio is a helpful strategy.
Rather than relying on just one, investing in different digital assets means diversifying your investment. Diversifying your investment lowers the risk of losing money while increasing profits. Rebalancing your crypto portfolio may be too late when the bears come. Here are some strategies you can follow; you can hopefully avoid the negative consequences of your actions by using some of these strategies. But new investment options are still available for your cryptocurrency portfolio. Examine the market for new asset types and substantial projects that could be winners in the months or years.
- Don’t Forget to Be Short
When you decide which coins and digital assets are the most fundamentally sound, you will usually be able to earn a profit for the time being (provided you buy them and hold them). I.e., it would be best if you bought low and sold high. However, selling is typically the best strategy in bear markets, and the trading method shifts to buying high, selling low, and repeating the process if possible. However, there are fewer opportunities for long positions in a bear market, while short posts are abundant. However, few traders are comfortable trading fast, and there are even fewer who can do so profitably.
Profiting from a declining market can be achieved through short sales, shorting options/futures contracts, buying inverse ETFs, etc. Knowing each method before risking substantial sums is always a brilliant idea since each has its benefits and drawbacks. In spite of either positive or pessimism with respect to the long term outlook for cryptocurrency and the industry in general, most cryptocurrencies will likely experience a downturn, which is what is known as a bear market. Because of this, short selling can take advantage of opportune moments to generate substantial gains.
Crypto Bear Market: 4 Moves to Make
Bear markets start when stocks drop more than 20%. As cryptocurrency is so volatile, its price can fluctuate by up to 20% within days, and this definition does not apply. As long as prices decline consistently for an extended period, we can define a cryptocurrency bear market. A bull market is marked by rising costs and high confidence, the opposite of a bear market.
During prolonged and extreme price drops, investors can encounter the most demanding and testing times. It is especially concerning when cryptocurrency prices drop by 50% within a few months, as they have repeatedly in the past decade. Sometimes investments decline in value, and bear markets are a fact of life. When things are not going well as an investor, you should do the following four things.
Don’t panic sell
When prices drop substantially, it is tempting to cut your losses. Consequently, you won’t be able to take advantage of the price hike the next time it occurs. Further, after a sharp decline, selling contradicts the oldest investment rules: buy low and sell high. Granted, timing the market is often more complicated than it seems. However, losing money on a sale is unavoidable.
You will become more relaxed. In order to get more comfortable, try to take a deep breath and think about why you invested in cryptocurrencies in the first place. In theory, blockchain technology could revolutionize how money is managed — or Web 3 will change how the Internet operates. Avoid selling now if prices have dropped.
Keep an eye on the long term
Putting this latest drop in perspective requires thinking about your long-term goals. We have seen declines before in a volatile market like cryptocurrency and will likely see more. It is much easier to hold your investments when you have a five- to the ten-year horizon when times are tough.
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Use this time to research
It would be best to focus on how much it has dropped rather than on how much it has fallen; use this time for research. Investing time learning about cryptocurrency in general or specific cryptos never goes to waste. If you are interested in crypto, explore a sector you are interested in. You might also consider developing your investing skills to manage risk differently in the future.
I have been learning about different passive income opportunities during this bear market. Despite falling prices, I find it comforting to know that my crypto assets earn more than 5% annual returns. Some coins are stacked in my account, contributing to overall network security and paying regular returns. My portfolio also contains many higher-risk investments like yield farming and liquidity pools.
Consider buying the dip
Social media is awash with “buy the dip” whenever prices drop. As we discussed earlier, we should buy low and sell high. According to Warren Buffett, “Buy when the streets are bloody, even if your blood is being spilled”. Nevertheless, it is not suitable for everyone. Prices may fall even further. Some investors buy dips in more miniature stages, so they buy $100 today and another $100 next week if the price drops more. In this way, you can reduce the impact of prolonged price drops through dollar-cost averaging.
A sale is going on in the crypto market, which may lead to people spending money they weren’t planning to invest or money they need for other financial goals. Also, they might buy cryptocurrencies without conducting sufficient due diligence, which could be detrimental in the long run. It’s best not to purchase cryptocurrencies because they are cheap if you are short on cash, have a high crypto exposure in your portfolio, or cannot research which cryptos to buy. There will likely be more lows in the future, and hopefully, you’ll be better prepared to take advantage of them.
Bear markets in crypto last for how long?
A bear market lasts on average 289 days (roughly 9.6 months). Considering that a bull market lasts 991 days (2.7 years), that’s a short period. In the long run, bear markets occur every 3.6 years on average.
How can you survive a bear market?
Although there are occasional “relief rallies,” the market generally declines. Eventually, investors find attractively priced stocks and begin to buy, ending the bear market for good.
Is 2022 a bear market crypto?
Market conditions for cryptocurrencies have been bearish since the beginning of 2022. In 2022, most cryptocurrencies still had losses from their plunges. Prominent cryptocurrencies have been hit the hardest.
Can you still make money in the crypto bear market?
In the current bear market for cryptocurrencies, do you still have a chance to make money? Q&A.. Whether the need is bullish or bearish, day trading is the only way to profit. When investing in cryptocurrency, you should consider that the market is incredibly dynamic.
How do you recognize a bear market?
Market declines, such as those experienced by the S&P 500, are often considered bear markets. Still, similar reductions can also occur in individual securities or commodities over sustained periods, such as over two months.
Conclusion
The cryptocurrency market is in the middle of a bear market, but even so, there are ways to survive and grow stronger. Therefore, bear markets are not a threat. When many others take losses in their portfolios, we make quite a bit of money by implementing alternative strategies.
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