- Quick-but-Critical Definitions
- Bull Vs. Bear market
- Crypto Winter
- Eight Strategies to Employ in a Crypto Bear Market
- 1. Stay Calm and Assess your Options
- 2. Carefully Assess the Current State of the Market
- 3. Avoid Leaving Your Crypto on Exchanges
- 4. Don’t Try to Time the Bottom
- 5. DCA
- 6. Avoid Shorting in a Crypto Bear Market
- 7. Consider Staking
- 8. Diversify Investments Across Various Crypto Assets
- Additional Investment Strategies for Bear Markets
- Conclusion
What to Do in a Crypto Bear Market? 8 Strategies for Bear Market
Here are some keys to navigating a bear market, with explanations to come:
1. Stay Calm and Assess your Options.
2. Carefully Assess the Current State of the Market.
3. Avoid Leaving Your Crypto on Exchanges.
4. Don’t Try to Time the Bottom.
5. Look out for Dollar-Cost Averaging (DCA).
6. Avoid Shorting in a Crypto Bear Market.
7. Consider Staking.
8. Diversify Investments Across Various Crypto Assets.
Quick-but-Critical Definitions
Bull Vs. Bear market
Recommended Brokers
Crypto Winter
Eight Strategies to Employ in a Crypto Bear Market
Nobody buys into crypto expecting to weather a prolonged bear market. Most crypto investors are attracted to the high upside of the asset class and the promise of steep gains. Thus, it takes a mental adjustment to accept a crypto bear market when it comes around. To help you navigate the inevitable (every assets goes through up and down cycles) downturn in crypto assets, we have collated a list of the best actions available to you:
1. Stay Calm and Assess your Options
Don’t panic and, as much as you are able, calmly consider where you are. The absolute worst thing you can do is make rash decisions. Emotional decisions will come back to haunt you, particularly as a trader. Renowned American economist Benjamin Graham once said, “Individuals who cannot master their emotions are ill-suited to profit from the investment process.”
Begin by going back to ask yourself why you invested in crypto initially. Was it to make a quick buck by trading short-term or did you believe in crypto’s long-term possibilities? Did you want to be part of as many opportunities as you were able? The answer sets the stage for you moving forward out of the bear market, unscathed.
2. Carefully Assess the Current State of the Market
At the time of writing, bitcoin was selling at just under $20,000. Saying that out loud is scary to many because bitcoin’s high, just a few months ago, was $69,000. However, don’t be anxious about selling. As noted above, it is not easy to control your emotions during bear markets. Therefore, analyze why prices have fallen and dig deeper into the reasons. Develop your own solutions. Re-strategize before taking any action.
Take your time to research and learn about one or more of the cryptocurrencies. Be aware, however, that information gleaned from obscure Websites driven by self-interest may well only mislead you, further adding to the frustration. Always rely on credible sources and track the market regularly. As an investor, it is imperative that you know about crypto market trends and changes.
For investors with a higher understanding of technical analysis, i.e., predicting an asset’s price movements based on patterns, indicators and chart trends, there are indicators that gauge when an asset has hit bottom. One method is the Relative Strength Indicator (RSI). Two key elements of the tool include providing information on whether the crypto is overbought or oversold. Learning the intricacies of the RSI is one way to perform your analysis.
3. Avoid Leaving Your Crypto on Exchanges
While there always is a concern about having your cryptos on a custodial crypto exchange, the risks of losing them completely increases greatly during a turbulent bear market. A sudden market crash could lead to some/all crypto exchanges becoming insolvent. This is not being said just to scare you; it is always a possibility. Therefore, opt for a non-custodial wallet app or – even better – a test hardware wallet, where you have full control over your crypto holdings.
4. Don’t Try to Time the Bottom
It is a fact of life that no one can accurately predict the bottom of a bear market. You can devote all your available time to research and analysis and the best you can do is make an educated guess. Certainly, the more you study and analyze, the better your “guesses” become, and that is exactly what the experts do. However, one bad call and all could be lost, which takes us back to the headline of this section, which is about what you can do to ride out bear markets. Still, learn all you can in order to make your best moves, but do not put all of your holdings into that one “sure thing.”
5. DCA
An investment strategy that is usually successful during a bear market is Dollar-Cost averaging (DCA). With this strategy, you continue to purchase small amounts of an asset over time, regardless of the price. A typical DCA schedule would see you investing $50 on bitcoin every week rather than $200 all at once. Of course, you may change your DCA schedule from time to time, as you desire.
Using the above as an example, if you started purchasing $50 of bitcoin weekly three years ago, by now your total bitcoin investment over that period would be $7,850. Using a DCA calculator, you will see that the total value of that investment at the time of this writing would be $21,777. That is a 17.42% gain over the three years. Because it is very difficult when a digital asset reaches its lowest price before turnaround, experts advise saving your money by not spending it all at once
6. Avoid Shorting in a Crypto Bear Market
Traders use shorting as a technique to profit from falling crypto prices. Normally, shorting is an ideal method for use when an asset hits an established support level, i.e., within the normal course of business. However, many experts do not favor the approach when it comes to bitcoin or other cryptocurrencies because it could lead to unlimited losses or even liquidation of your position. This is a fundamental issue with shorting and no amount of experience can prepare you for a market whose bottom is falling out.
Shorting is selling an asset at a high price with the intention of repurchasing it later at a low price. In practice, it is borrowing a certain cryptocurrency at a current market price and selling it immediately. When prices fall, you purchase the same amount of crypto at the lower price and return it to the lender, profiting from the difference.
For example, when you purchase a crypto (going long), you can never really lose more than the amount of that investment. Thus, if you purchase bitcoin for $1,000, the maximum you could lose is $1,000. By contrast, the potential gain is limitless (at least on paper). If you short bitcoin for $1,000, the maximum you will gain from that trade is $1,000. However, if the crypto’s price begins to increase and the uptrend continues, your losses could pile up indefinitely. To make matters worse, if you short using margin, you must continue paying the interest charges, in addition to the original loss, for as long as you choose to keep your position open.
7. Consider Staking
Staking is the practice of locking away your coins on a proof-of-stake (PoS) blockchain for a period of time and being rewarded for it. This may be a good way for you to earn a passive income from your crypto holdings. It is an easy-to-use strategy that also minimizes the emotional impact of a bear market. You can stake coins and earn extra income during a crypto bear market. Many layer-one protocols permit staking of native tokens on their networks for yields.
8. Diversify Investments Across Various Crypto Assets
With more than 17,000 cryptocurrencies on the market, no one can predict which one will rank highest or recover quickest, just as it is difficult to predict just how long the crypto bear market will continue.
You should investigate various cryptos to learn their all-time highs, their overall performance, and to determine their roadmaps. A new roadmap announcement, which might include a new partnership or rebranding, just might be a major clue that a crypto is on the up.
One approach to hedging your bets is to use DCA for a range of different crypto assets, which may even involve reducing trade sizes even more. Before making such a move, learn and understand previous all-time highs and past performance, and how your chosen crypto fared in previous crashes.
Additional Investment Strategies for Bear Markets
Conclusion
FAQ
The consensus among experts is that crypto bear markets normally last one to two years. Historical cycles have shown that when bitcoin is halved, it stays in this bear market for one to two years. Thereafter, its value turns a corner and significantly increases and the rest of the crypto market follows, leading to a bull run for two to three years.
Yes, a crypto winter is a real thing in as much as it refers to a poorly performing cryptocurrency market that persists over a long period of time. A crypto winter is comparable to a bear market in the stock market, only longer. A crypto winter features extreme negative sentiment and lower average asset values among most digital currencies.
Crypto winters do not have a defined lifespan. We already know that crypto bear markets typically last some one to two years. It can be surmised that since a crypto winter is a more extreme version of a crypto bear market, then the underperformance of the asset will be more pronounced and the time period will be longer.
A bear market is a period within the trading cycle of an asset where the market is continually losing value. A bull market, on the other hand, is when the market appreciates consistently over a period of time.
Yes, crypto is currently in a bear market. From an all-time high of $69,000 a mere seven months ago, bitcoin has crashed to under $20,000. Other major cryptos, like ethereum, have also lost similar values. These steep losses in value are consistent with the definition of a bear market.
It all depends on your risk appetite and your trading strategy. If you are a position trader who has done fundamental analysis on the crypto market and you are confident the tide will turn, then you should stick to your guns and hold on to your crypto. If you are an investor with few funds, limited risk appetite, or you want to day trade, you are advised to divest from the crypto market if you have not already done so.
