Those generalisations might come out as harsh, but as the phrase goes, even a fool can profit in a bull market. How well you handle a bear market is the best indication of how skilled a trader you are. This well accepted axiom applies to all markets, not just the cryptocurrency market.
However, given the level of volatility that cryptocurrency typically experiences, a bear market in cryptocurrencies tends to carry significantly more dangers and challenges. The following tried-and-tested methods to survive crypto bear markets should be incorporated into our trading/investment strategies as we see the potential start of another crypto winter with the majority of the well-known coins trading at a loss.
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What is a crypto bear market?
A lengthy and frequently dramatic decrease in the price of almost all assets is known as a bear market in the cryptocurrency space. In conventional financial markets, a bear market is generally defined as when asset prices decline by 20% or more from recent highs and there is dissatisfaction with price prospects. By extension, a crypto bear market, often referred to as a crypto winter, is a similar decrease in the price of cryptoassets on the market as a whole and frequently leads to the removal of some projects from the market as they struggle to raise money and fulfil investor and user expectations.
A demand-supply imbalance that places the majority of market participants on the sell side signals the start of a crypto bear market. Selling starts to overwhelm demand as fear and uncertainty start to seep into the bubbly market circumstances, leading to severe falls that take time to recoup.
What exactly is crypto winter?
A crypto winter occurs when the price of digital assets declines and stays for an extended length of time much lower than its most recent peak, similar to a bear market in traditional stocks. Technically, bear markets demand a 20% peak-to-trough price decline, but there is no such metric for crypto winters. However, with Bitcoin down more than 70% from its all-time high as of October 2022, it is obvious that we are already well into the crypto winter.
Since cryptocurrencies are a relatively new asset class, it is difficult to anticipate when this particular crypto winter will end by looking at their long historical trends. But we can definitely identify the starting point thanks to the amazing power of hindsight.
Because cryptocurrency prices can be volatile, true crypto winters can be difficult to spot until they’re well underway. We can safely say that the most recent crypto winter began between late 2021 and the middle of 2022. According to total market cap data, the absolute peak of the 2021 bull run occurred on November 9, when the total cryptocurrency market cap was a hair above $2.9 trillion. By late October 2022, that figure had dropped to $918 billion, a nearly 70% drop.
Following last year’s “everything rally,” in which it was difficult to lose money on almost any investment, a brief crypto market correction to kick off 2022 was probably to be expected. After all, corrections are a normal and healthy part of the market cycle. When prices fell and remained depressed well into spring, then fell even further by the start of summer, most observers agreed we were in the grip of another crypto winter.
Best strategies for surviving a bitcoin bear market
Bitcoin, as the most popular coin (by market cap), is a crypto market trend-setter. So, if a crypto bear market is on the horizon, the first signs of it are almost always visible in the price movement of bitcoin. So far, other cryptocurrencies have simply rallied behind it. And this observation holds true even when the market recovers and eventually begins a new bull run.
However, based on previous bear markets, it is safe to say that bitcoin always recovers. As a result, the vast majority of experts and industry insiders believe that hodling and patiently waiting out the storm is the best way to survive a bitcoin bear market. Having a long-term perspective is more important than succumbing to the urge to sell in a panic. Furthermore, avoid trading during bearish market conditions, especially if you have little to no prior trading experience.
Aside from that, the majority of the points we’ll cover in the following section are also applicable to a bitcoin bear market.
1. Assess your options
Whether you see the bear market as an opportunity to buy the dip or as a source of stress, always try to remain calm and assess the situation objectively. Emotional decisions are the ones you’ll most likely come to regret later, especially if you’re trading.
To begin, consider why you are investing in cryptocurrency in the first place. Do you believe in the long-term success of cryptocurrency and want to capitalise on the numerous opportunities that it may bring? Or are you only interested in making quick money through short-term trading?
The answer to this question could be a stepping stone toward figuring out how to get out of the bear market unscathed.
2. Do not attempt to time the bottom
Nobody can predict the bottom. You could spend all of your time studying technical and fundamental analyses or listening to experts, but at the end of the day, you may still have to rely on your gut instinct when attempting to time the bottom. And, as you’re probably aware, gut feelings aren’t much of an option when it comes to navigating a crypto bear market, or worse, a crypto winter.
You can buy when the price appears to be at its lowest. However, the price could fall even further. And if it does fall, you’ll have to sell it again to have another chance at catching the elusive bottom. This strategy will almost always result in your wallet shrinking.
3. Dollar-cost averaging (DCA)
The finest technique, known as dollar-cost averaging (DCA), is one that has consistently produced excellent results, even in the worst bear markets. It is a straightforward but long-term strategy in which you keep making incremental purchases of an item over time, regardless of price, in modest sums.
A DCA programme, for instance, would have you invest, say, $50 in bitcoin every week as opposed to $200 all at once. To accommodate your changing needs, you may occasionally modify your DCA schedule.
Using the previous example as a guide, let’s say you started purchasing $50 worth of bitcoin each week three years ago. You would have made $7,850 in bitcoin investments by this point in the three-year period. You can now use a DCA calculator to determine the total value of your investment, which is now $21,777. A increase of 177.42% percentage points over three years is a considerable gain.
4. Think about staking
Staking appears to be a viable technique to generate passive income from your cryptocurrency holdings when things go rough in a bear market for cryptocurrencies and your portfolio starts losing value left and right. The act of locking up your funds on a proof-of-stake (PoS) blockchain for a set amount of time in exchange for rewards is known as staking.
If you want to learn more about staking cryptocurrency, this comprehensive guide is a fantastic place to start for people who are not in the know. The best thing about staking is that it makes your wallet bigger even during a bear market. In this manner, you will have more money to start with when the bull market returns.
Because your money is safely held on a blockchain, staking further reduces the likelihood of panic selling.
5. Avoid shorting in a crypto bear market
Shorting is a strategy used by traders to gain from declining cryptocurrency values. In a bear market with frequent price reductions, it should make it ideally a good fit.
The majority of specialists, however, will caution you against shorting bitcoin and other cryptocurrencies because doing so could result in limitless losses or the liquidation of your position. This is a fundamental issue with shorting, and no amount of practise can shield you from the jarring surprises that await you when things go wrong.
You can never actually lose more money when you purchase a cryptocurrency (go long). Consider buying $100 worth of BTC, for instance. With that investment, the most you could lose is $100. On the other hand, the gain might be endless, at least on paper. Imagine a situation where the price of BTC rises by such a large amount that an investment of $100 results in returns of $500, $1,000, $10,000, and so on.
With shorting, it’s quite the opposite. The most you could possibly make from shorting a coin at $100 is $100. However, if the crypto price starts to rise and the rally persists, your losses could continue to grow indefinitely. Additionally, if you short utilising margin, you will be responsible for continuing to pay interest fees on top of the initial loss for as long as you decide to maintain the position.
6. Examine the market’s current state carefully
In the middle of the current negative trend as of mid-2022, bitcoin appears to have found significant support close around $30,000. Given that several significant institutional investors purchased within this region, this support is anticipated to hold the line for some time.
The majority of new buyers who likely purchased around the peak have already sold most of their cryptocurrency amid fear, anxiety, and doubt, according to other indicators (FUD). At this point, their withdrawal from the market might help to keep cryptocurrency prices stable.
The key takeaway from this is how crucial it is to keep up with market developments and maintain situational awareness. You’ll have the best chance of being in the right position to respond swiftly and minimise losses if you do this.
7. Avoid storing your cryptocurrency on exchanges
“Not your keys, not your coins”, as the saying goes. This holds true for just about any situation involving a centralised, custodial cryptocurrency exchange. However, during a tumultuous bear market, the chances of losing your money in these exchanges forever increase.
Think about the potential consequences of a sudden market crash. The market would lose billions of dollars, leading to the insolvency of numerous exchanges.
To have complete control over your cryptocurrency stockpile, always choose a non-custodial wallet app or, even better, a tried-and-true hardware wallet.
You will inevitably lose money as a trader or investor, there is no doubt about that. No matter how experienced you are in the game, a 100% strike rate is nearly unattainable. However, by employing the above-discussed tactics, you will greatly lower your likelihood of being a victim of crypto bears. Additionally, be sure to adhere to the other fundamentals, such as consistently implementing stop-losses if you are trading.
To provide you even more advice on navigating cryptocurrency bear markets, we will be updating this post from time to time. Wishing you success in your future trades and investments until then.