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In this episode of Be[In]Crypto’s Video News Show, host Juliet Lima offers seven ways to survive the current bear market that cryptocurrencies are experiencing.
What is a bear market?
A bear market can be thought of as a prolonged drop in asset prices. In contrast, the opposite of a bear market is a bull market, a prolonged period when the price of an asset or asset class goes up.
There is a push and pull between buyers or the demand, and sellers, the supply, of any asset, and the balance between the two creates the price. Crypto is currently influenced not only by supply and demand or the asset but also by socio-economic stability, as broader financial markets still play a key role in price volatility.
A key thing to note in bull and bear markets is that most investors are bulls. They want to see the prices increase. They believe in the particular project and want to see it succeed. So far, during crypto’s short-lived history, bull markets have been the norm. However, bear markets can be notoriously difficult to invest in, as assets can rapidly drop in value, and prices can be much more volatile. So, here are some tips for navigating a bear market.
Keep calm and carry on
The first suggestion is to consider the situation rationally and to mitigate any emotional impact. Investors still retain the same amount of crypto assets, however, since their prices are down, that only means they are currently less valuable.
In addition to eventually seeing their prices rise, crypto investors ideally also believe in the projects they have invested in, giving them some ulterior benefit. With such belief, managing a short-term downturn can be much more manageable.
Don’t try to time the bottom
As prices drop it may be tempting to assume that they have reached the bottom, making it an ideal time to scoop up as much crypto as possible. While buying the dip may be wise in moderation, trying to time the bottom for a big payout is typically folly, as prices can and often do fall further. Those who try and time the market will more than likely end up losing money.
Dollar-cost averaging
Even during the harshest of bear markets, the tried and true method of dollar-cost averaging (DCA) has proven to have worked spectacularly. Dollar-cost averaging may be a simple strategy that usually pays off in the long run.
Investors simply buy a small amount of an asset over time and keep buying consistently regardless of the price. For instance, buying $10 worth of Bitcoin over the past three years would have cost $1,570, but that amount would currently be valued at $4,316, an impressive appreciation of 175%.
Consider crypto staking
Staking can be a good way to generate some passive income, despite a drop in the price of the asset. Staking refers to the practice of locking up coins on a proof-of-stake blockchain for a period of time and receiving compensation for it.
The great thing about staking is it increases the size of investors’ holdings even in a bear market. Because the crypto is locked away, investors are also relieved of the temptation to sell it in a panic.
Avoid shorting
As numbers seem to continue to decline during a bear market, it can be tempting to short sell some crypto, only to buy it back once prices have fallen further. However, many experts advise against this strategy, especially in crypto, because it could potentially lead to unlimited losses or even a liquidation in your position.
Upon shorting $100 of Bitcoin, the maximum one could earn from that trade is $100. Although if the price of crypto starts increasing and the uptrend continues, the losses could pile up indefinitely.
Assess the current state of the market
Any potential trading during a bear market would ultimately benefit from an assessment of the current state of the market. For example, Bitcoin seems to have stabilized at around $30,000. This seems to be the case after observing for the past few months. This is supported by the fact that several big institutional investors seem to have bought in at this range, while many retail investors bought near the all-time high.
The main idea here is to stay updated on the latest news in the crypto world. Situational awareness about the current state of the market can be developed by doing some individual research, to act accordingly and minimize losses and maximize gains.
Avoid leaving crypto on exchanges
Cryptocurrency holders are advised not to keep their crypto on custodial exchanges. During a bear market, they may find that this serves them poorly. For instance, during a nasty crash, there could be a run on the exchange’s reserves of crypto. If they are engaged in any fractional reserve banking, the crypto may no longer be there to be withdrawn.
In another worst-case scenario, an exchange could end up completely insolvent and users could potentially be considered an unsecured creditors. Recently, Coinbase issued a warning expressing this. Ultimately, keeping crypto with a third party somewhat defeats the purpose of owning it.
To sum up:
- Keep calm and carry on
- Don’t try to time the bottom
- DCA
- Consider staking
- Avoid shorting
- Assess the current state of the market
- Avoid leaving crypto on exchanges
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