Cryptocurrency is an industry that’s fuelled by volatility. It means that prices can fluctuate to over 10% on a given day. While this volatility is exciting as it allows traders to profit from the price changes, it discourages many traders from entering the crypto market because some are unwilling to risk their hard-earned money when a bear market appears.
There are days when the prices can drop by over 20% for up to a month or two. Such a scenario is what is considered a bear market. The bear market in crypto is like the bear market in the stock market. Typically, some investors tend to sell their assets during this market. But surviving the bear market can be the difference between success and failure.
Here are some ways to thrive in the crypto bear market.
Understanding Market Cycles
Understanding the crypto market cycle is crucial to surviving and thriving in a crypto bear market. In general, financial markets tend to fluctuate between growth and periods of decline. This cycle can happen over months or years at a time.
There are four stages of a market cycle: accumulation, markup, distribution, and markdown. Let’s get to know them more below:
- Accumulation: Investors buy and hold through this period anticipating that the market will recover. They accumulate as much as possible at the lowest price possible because the prices have flattened.
- Markup: This is when the price goes up, and investors hope to see their investments grow in value. There’s a lot of hype and excitement with new buyers coming into the market. Also, there are higher-ups and higher lows, so the general sentiments of the market have changed.
- Distribution: This is when early investors sell their holdings to newer investors who are buying at higher prices during the markup phase. People make money during this phase by selling to each other.
- Markdown: This is when nobody wants to buy anymore because they’ve lost interest or don’t believe there’s any value left to extract from the market. It is usually a painful phase for those who still hold positions.
By understanding this cycle, you can execute great trades, such as buying the dip or avoiding it. It will help to cut costly mistakes.
Diversify Your Crypto Portfolio
At any given moment, some cryptocurrencies will be performing better than others. Suppose you diversify your investment by putting your money into several different coins. In that case, you’ll be able to minimize the effects of a bear market crash in any one coin on your net worth as long as there aren’t big problems with the entire crypto industry.
There are many ways to go about diversifying your portfolio. You can look at what coins other people are investing in or analyse which coins have good technology and have a large community behind them (community can often drive the price up). Some people believe in investing in coins that fill different niches within the blockchain space. For example, if you invest in Bitcoin and Ethereum but not Litecoin or Ripple. You may still be vulnerable if one of these coins has trouble because they’re all competing in similar arenas.
Regardless of how you choose to diversify your assets, ensure that you do it! It’s impossible to say what will happen with cryptocurrency prices over time. They could continue dropping, but if you spread out enough so that a crash won’t wipe out everything you’ve invested, things will eventually recover and become profitable again if things get rocky for a while.
Don’t Short The Market
Shorting the market is one of the most fundamental crypto trading strategies, but it’s not always effective. It’s easy to get caught up in the FOMO (fear of missing out) that comes with a market downturn when everyone else is panicking and selling their assets. Your instinct may be too short, but that could be a costly mistake. When you short an asset, you are selling it for cash and then buying back the same amount later.
The idea is that you’ll be able to buy it again at a lower price than what you sold it for, thus profiting from the decline in value. However, this strategy works best in markets that are consistently trending downwards—which isn’t always the case in crypto. Sometimes the market can see an increase in value right after a decline, or it may even turn around completely and start trending upwards again. You could be stuck buying back your assets at much higher prices than what you sold them for, which would result in a loss instead of profit for you.
Staking is another option for investors who want to earn passive income. With staking, users are rewarded for running and maintaining a full node of a cryptocurrency. Essentially, you become an active participant in the network, which helps secure it and can also help govern it if you’re staking proof-of-stake coins.
Staking is also helpful in bear markets because the amounts users receive are generally fixed and denominated in the currency they have chosen to stake. When market conditions change, stakers continue earning their tokens regardless of price fluctuations.
Use Dollar-Cost Averaging
Suppose you want to buy into the crypto market but are afraid of buying in at the wrong time. You can do this by using dollar-cost averaging. It means taking a set amount of money each week or month and buying cryptocurrency. Over time, you will be adding to your position while the price goes up and down, meaning that you are buying more coins when the price goes down.
Dollar-cost averaging helps smooth out the price fluctuations in the market by buying more cryptocurrency when the price goes down and less when the price goes up. It spreads your risk over time and ensures that you won’t buy all your crypto at the bubble’s peak. You can also use this strategy to invest large amounts of money over time without worrying about timing the market.
Bear Market Conclusions
The cryptocurrency market has fluctuated wildly in the last 18 months and is expected to continue to be volatile going forward. When times are good, you have the chance to grow your portfolio and worth. When things are down, it is easy for investors to panic sell. But a wise investor should find a way to thrive in a bear market through the strategies discussed above.