The crypto market has been hit by upheavals in recent weeks, with the estimated value loss amounting to more than $90 billion. In simple terms, the entire scenario right now shows that the bears are raging. What can you do in this regard as an investor?
The Bear Market Indicators
The bear market mirrors a fact of life that “life is not a cream cake.” Technically, at any time that the market loses 20 percent of its valuation, it goes into a bear season.
There is no time-frame for how long the season might last. What is sure is that when the market wears itself out of its pessimism, the prices will start rising again.
The following signs herald a bear market:
• A persistent fall in the overall market capitalization
• A continuous drop in the ruling price of market leaders
• Un-sustained price appreciation leading to price gain reversals
• A raging sell-off accompanied by investors’ pessimism
• A pall in new products.
Understanding Market Cycles
For the newbie investor, the plunge in market prices of the leading tokens and coins is a foreboding that cannot be ignored. However, there is nothing unusual about the crash thus far. Stock markets have been in the limelight since the start of the industrial age, and so far, three unforgettable cycles of busts are documented. Yet, all the national bourses have continued to trudge on.
The cryptocurrency market cannot be any different from conventional securities in the sense of dips and rises. The bear season makes the uninformed lose heart, but it also presents a chance to make a killing if you know your way around the market.
Ways to Hedge in a Bear Season
To hedge is to minimize the impact of any negative circumstance or financial loss. In a bear season, there are options to take to minimize the eroding of your investment value.
The Stablecoin Route
Stablecoins have their values tied to fiat currencies, and in this sense, even in the worst of bear markets, they can only lose fractions of cents in value. Stablecoins are therefore a good form of hedge amid a bear season. You can be sure that you will be able to maintain your investment value and minimize losses.
There are several stablecoins in the market today with the likes of USDC, Pax, USDT, and Stasis EURS ruling the hood. The fact that these can be bought from exchanges across the globe makes it easy to hedge with them.
Use Wallets that Pay Interest
Some wallet providers now pay interest for saving your tokens and coins on their platform. Celsius and Uphold presently pay varying interest rate for tokens deposited with them.
Deposit Tokens and Coins for Loans
SALT is the premier platform that provides fiat lending against cryptocurrencies. In a bear season, you might want to avoid selling your holdings at rock-bottom prices and instead get a fiat loan. With low-interest rates charged, you can get some money as a loan to meet your needs from these platforms.
Go with Dividend-Paying Projects
The crypto market is still at its infancy and not many people are aware that some projects do pay dividends weekly, bi-monthly, and monthly. Knowing the kind of projects that fall within this class can help you beat a bear market.
Bankera is one cryptocurrency project that has consistently paid dividends over the course of the past 12 months. Holders of Bankera tokens get paid weekly dividends from the income generated by Bankera exchange and the Spectrocoin platform. While the payouts might not be fantastic, they can give you a reason to smile amid a bear season.
Arbitraging from Losers to Gainers
Arbitraging is perhaps as old as man, and this concept is in use in many areas of human endeavor. With respect to crypto markets, it means dumping tokens and coins that are losing market price for those that are appreciating in value.
However, because of the volatility of cryptocurrencies, it is important to understand how this works. Here are the tools that can help you in this regard.
Using a Stop-Loss
A stop-loss will help you trigger a sale when the market price of your underlying asset falls below a stated threshold.
For example, if you bought Bitcoin at $300, you might set your stop-loss at $290 so that when the price drops to that level, an automatic sell order is created. If activated, you would have succeeded in limiting your loss to $10 if the price fall endures.
Use Market Orders
When you create a market order, you are setting a threshold at which your crypto can be bought or sold. This can be used efficiently all-season and during the bear rage. However, with market orders, it is more likely to be used when execution is certain.
In a bear season, your order might not be filled if prices are continually falling, and in view of the prevailing investors’ apprehension. However, if you can pinpoint some tokens and coins that beat the dip-trend, you can use a market order to execute a sale. You will set your sale order at a level that gives you the desired return on your investment.
For example, if you bought a coin at $0.50, and it is defying the bears, you can make an allowance for 20 percent price increase and trigger a sale at that level. So, while others are making losses, you will still be able to record a decent trading profit.
A good example here is Optitoken, in the week to Dec 7, 2018, it has recorded a price surge. Anyone who bought it for $0.027 on Dec 4/18 could have sold it for $0.031 during morning trades of December 7/18.
This price chart from CoinMarketCap gives a clear view of the scenario:
The bear market is bad news to many people, but, to the savvy investor, it is a good time to navigate the space and snap up valuable cryptocurrencies at rock-bottom prices. While what can be described as valuable might be subjective, it is also true that several projects on the crypto scene are making considerable progress and therefore, worth buying.
Do you have an insight on projects defying the current bear market? Leave your snippets in the comments below!
Images courtesy of Shutterstock, CoinMarketCap.
[Disclaimer: The contents of this article are not intended as financial advice and are for informational purposes only. Always consult with a trained financial professional before making any investment decisions.]