The crypto world is becoming more and more divided, with people on either side of the debate. It’s not surprising that it’s challenging to make money these days as there are so many differing opinions out in this field!
The news regarding the stablecoin TerraUSD and its sister currency Luna rattled the entire crypto market. Terra and Luna are no more valuable, leaving investors speechless. So, for the stablecoins these days, we can say that the small dips can turn into big worries.
But that doesn’t mean you should throw up your hands and run from the markets. You can take fair advantage of this volatile yet competent crypto bear market opportunity.
What is a Crypto Bear Market?
A crypto bear market is defined as a prolonged period of time (usually months) where the prices of digital assets continue to decrease.
For an asset to be considered in a bear market, the price must fall by at least 20% from its peak and remain there for at least two consecutive months.
Though we know that the bear market is where the crypto prices fall, encouraging sales, one can never be 100% sure of the bearish trends in crypto, not even when people look at metrics and patterns like Cup and Handle or Death Cross.
Being in the double-digit loss in percentages, the crypto market recently left many investors stressed out, significantly when Bitcoin dipped below US$ 30,000 on 9 May 2022. It happened back in July 2021.
What Causes Bear Markets?
Numerous factors can contribute to a bear market, but the most common is simply investor sentiment. When most people lose faith in an asset, they sell it off, causing prices to plummet. Other causes can include regulation, hacks, and significant news events.
But apart from crying in the corner, here are the things we encourage you to do when facing the bear market.
5 Strategies to Follow in a Crypto Bear Market
1. Use Dollar-Cost Averaging (DCA) to Buy the Crypto Dip
Buying the dip implies investing a set amount of cryptocurrency when the market experiences a significant bearish downturn. The goal is to reduce the effects of volatility by buying crypto when prices are down and averaging into your position over time. Because dips have always benefited crypto investors, it’s an excellent method.
When it comes to buying the dip, a few different strategies may be utilized. Dollar-cost averaging (DCA) is one of them, which entails splitting your reserve funds into smaller tranches and executing numerous trades over time.
Let’s assume you have $2,000 in reserve funds. If you use a DCA technique, break up the total into five pieces of $400 or ten parts of $200, and place trades with those amounts, it’s likely to be more successful.
The idea is that it’s challenging to know when an asset has bottomed out (turned around and fallen in price), so instead of investing all of your money at once, it’s usually better to buy a little amount and see if the asset falls further. If it does, purchase a bit more, and so on.
2. Short Selling When a Certain Crypto Price is Down
Crypto investors can profit from a bearish market by betting against crypto. Another way to benefit from a crypto bear market is by short selling. Short selling crypto means selling an asset you do not own and then repurchasing it at a lower price so that you can pocket the difference.
Shorting crypto is the practice of buying any cryptocurrency at a high price and then purchasing it again at a lower price. Like in all other trades, traders desire to buy an asset for a low price and then sell it for a higher profit. However, with shorts, the scenario is reversed.
A short position is one in which you borrow crypto assets and sell them at the current rate on an exchange. If the price drops later, you take advantage of the difference between the selling and purchasing prices to pay back your money. You’ll then need to acquire the cryptocurrency and return the loaned funds.
Consider we’re about to short 10 bitcoins. The market price of BTC is currently $60,000 per unit. It will approach a net worth of US$6,000,000 over the next year. We’ll borrow ten Bitcoins from our broker at today’s market rate. If the market moves as expected and a single BTC’s price falls to $50,000, it will result in 5 million dollars in profit (minus fees). So we buy this current price and pay it back to our broker. We tend to end up with a profit of US$ 1,000,000.
The opposite of “long” is “short.” When a currency’s value declines, this is handy. Besides, you may always go long when you’re sure the market price will rise. There are certain risks associated with shorting. If events do not pan out, you might have to buy a higher-priced currency to repay your broker.
3. Invest Your Time in Research
Or “Keep calm and DYOR!”. When it comes to how to invest in a bear market, most of us focus on the prices dropping. It’s typical for investors to worry about the volatility in bearish trends. You should use this time to study things. Spend your valuable time learning about any one person’s cryptocurrency or multiple cryptocurrencies. The outcomes will amaze you!
If you want to start with a particular cryptocurrency, that’s fine. If you’re looking for more investment skills to use on your digital assets in the future, there are plenty of options.
You may also get more information about cryptocurrencies as a passive source of income. It contributes to network security and regular payments by keeping a percentage of reserved cryptocurrency on hand. Even if the prices fall, you can be confident that your crypto assets will generate returns of more than 5% each year.
A systematic and comprehensive study will assist you in hitting your mark in crypto trading. Keep in mind that websites motivated by self-interest or obscure sources will only mislead you, and you will be disappointed. So, before diving into anything (DYOR).
As an investor, you must be proactive in keeping track of the crypto market’s development and progress. You must also be skilled enough to face any future obstacles in the crypto market. Always trust reputable sources and monitor the market regularly. It’s the greatest method to protect your cryptocurrency holdings.
4. Don’t Be Anxious About Selling
It’s difficult to manage your feelings while going through a bear market execution. Individuals who don’t control their emotions will not receive any value from their investments.
Humans are programmed to minimize their losses when a significant downturn occurs. However, doing so will not result in any gain over time. You should take a step back and recall why you invested in cryptocurrencies in the first place. You’re undoubtedly excited about getting ahead financially by making more money and saving more money.
You may significantly impact profits through vivid envisioning and smart planning. Earning money is a difficult skill to master. Greed may influence your thinking, causing you to expect more from things. It raises your trade risk, especially if you don’t use stop losses.
Re-strategize your trading behavior. Analyze why prices have dropped, delve further into the reasons, and devise your own solutions. Consider whether your prior findings remain relevant to today’s market demands or not.
5. Diversify Your Investments Across Various Crypto Assets
There are currently over 17,000 cryptocurrencies available. Nobody knows which of the cryptocurrencies will recover first or rank highest. It’s also tough to predict how long the cryptocurrency bear market will continue.
DCA is capable of trading a wide range of crypto assets. You may have to scale down your trade sizes, which will decrease the risk for your trading. It’s not advised to pick a cryptocurrency and invest in it blindly. You’ll spend enough time learning which one is best for you.
Consider the following:
1. The All-Time High Aspect
There is no guarantee that any cryptocurrency will ever surpass its all-time high. However, it may offer a hint about the potential of an asset.
2. The Performance
Assess the coin’s price history. You might use COINZIX trading tools to see how well it bounced back when things got tough. Is it in sync with other currencies in the market, or is it a loner that outperforms others? Although past performance isn’t a guarantee of future success, you can get an idea of its present market conditions.
3. Emerging Roadmaps
Roadmaps are essential when it comes to recovering from an assert. Roadmap announcements can be about rebranding, the opening of a new partnership, or the debut of a main net. A crypto’s price is affected by such events.
4. The Community
Last but not least, consider the crypto community. How committed are they to the crypto’s success? Do they have a Telegram group or Discord server where they discuss vital news and events? You can find out a great deal about a crypto’s future from its community.
A crypto bear market is a trying time for all crypto investors. The key to surviving and even thriving during such a market is to have a solid plan and to stick to it. The five strategies mentioned above will help you do just that.
Remember, the crypto market is still in its infancy. There are bound to be ups and downs. But if you play your cards right, you can come out on top.
So, what are you waiting for? Start investing today!