What To Do In a Bear Market?
Bull and bear markets are both an inevitable part of any market. So, the same stands true for the crypto market. Everybody knows that. But when the actual bear market strikes, people often lose confidence. And it’s understandable, given human nature.
When it’s about one’s hard-earned money, seeing it washed away in a bear market feels terrible. A lot of traders make impulsive decisions, sell in losses, and sometimes, they don’t cut losses when necessary. This is the reason why a lot of traders lose money during the bear market cycle.
But the good news is the bear market offers some pretty good opportunities to accumulate your favorite cryptos at lower prices. But for that, you must have a good idea about what to do and when to do it!
In this blog, we will give you an idea about what traders can do during bear markets to identify great opportunities and minimize losses. So, let’s begin.
What is a Crypto Bear Market?
A bear market is a phase when crypto prices keep falling for a longer period. There is no standard measurement of how much drop is considered as a bear market. But a lot of experts suggest a 20% or more drop in the overall market is a sign of a bear market cycle.
The reason for this drop could be anything. It could be a negative sentiment in the market, a drop in volume, economic troubles, or even heavy profit booking. In such conditions, a lot of traders and investors exit the market, and it causes more drop.
The factors include regulatory crackdowns, macroeconomic instability, or even negative market sentiment amplified by social media and news coverage. The problem with the crypto bear market is that they are a lot more volatile compared to traditional markets.
That’s why if someone wants to trade or invest during a bear market in crypto, it takes a lot of effort and analysis. But one thing is pretty clear: bear markets don’t live forever. They are a part of the market cycle. So, let’s understand how you can deal with a bear market.
Stay Calm and Don’t Take Emotional Decisions
We’ve said time and again that emotions are your biggest enemy in crypto trading. This stands true for the bear market cycle, too. When fear and panic are at the top, you might feel inclined towards impulsive selling. But when you do this, you close in red.
So it’s better to avoid such rash decisions just because you have an impulse to do so. Market downturns are normal, even for the crypto market. So first, analyze the cause of the fall. Is there something fundamentally wrong with your crypto assets? Are all crypto assets falling, or only the ones you are holding?
Ask these questions to yourself. Most importantly, trust your system. Remember why you bought a particular coin or a token. Was it just because you thought it would go up, or did you really believe in the project? Remember, crypto markets often rebound after a fall. But there have been cases (quite a lot of them, actually!) where junk coins fell during the bear market and never recovered. So, if you are buying something, make sure you understand the project. Have a set goal and stick to it. If the project is good, it will bounce back to its original value sooner or later.
Use Dollar-Cost Averaging (DCA)
This could be an excellent approach when you are in the bear market. It’s a system where you buy a certain crypto asset at regular intervals of time with a fixed amount. It doesn’t matter whether the price of that asset is going up or down; you invest a fixed amount.
How does this help? Well, the logic is pretty simple. When the market is down, you get to buy at lower prices. If the market goes down further, you get a chance to buy more crypto at an even lower price in your next buying cycle! Benefit? You don’t have to find out the bottom. Remember, it’s very difficult to time the market. But with cost-averaging, you can spread your risk and make big profits when the prices shoot back up.
The only problem? You’ll need a lot of patience and long-term vision. You cannot apply this approach to any crypto. You have to find a reliable one. You can easily analyze and identify the best cryptos on Visiion.io.
Diversify Your Portfolio
Don’t put all your eggs in one basket.” When Warren Buffet said this, he said it for stocks. But his words are true to the last letter, even for cryptocurrencies. Make sure you don’t go all in a single crypto. A well-balanced crypto portfolio is a key to growth and battling bear markets.
There are a lot of different crypto assets with promising futures. So why would you not want to diversify your portfolio? You can invest some of your portion in biggies like Bitcoin or ETH; then, you can allocate some portion to stablecoins as they offer more stability. Then, there are a lot of opportunities for DeFi assets, too. You can invest some in the metaverse for more diversification. Finally, there is a whole world of meme coins! While they are extremely risky, if you hit the right coin, you hit a jackpot! But we strongly recommend investing a very minute portion of your wealth in meme coins as they are risky.
In short, invest in different blockchains and protocols to beat the bears and ensure capital growth. You’ll get more flexibility and better risk management.
Invest in Blue-Chip Cryptocurrencies
Bitcoin and Ethereum have survived multiple bear markets. In fact, they are the mascots of the crypto market. So, it’s inevitable that you invest in such well-established cryptos. The reasons are numerous. These coins have a massive market cap, so it’s nearly impossible for anyone to manipulate the prices. So, the risk of pump and dump is near zero. Also, a lot of investors and traders from across the world invest in it. So, you get more liquidity and a higher adoption rate. Both are very important factors that you should look into while investing.
While altcoins fall sharply in a bear market, these blue-chip cryptos don’t. And even if they do, they are the first ones to recover once the bear market is over. So when the market falls, you should think of buying such blue-chip cryptos instead of running behind the least-known meme coins and altcoins. As these blue-chip cryptos are less speculative, institutional investors prefer them over altcoins in the long run.
Set Stop-Loss Orders
Now, this might feel contradictory to what we said earlier, but it completely makes sense. Remember, risk management is critical for crypto traders. Imagine if you are holding an altcoin. Now, the bear market kicks in, and your investment starts going down. This one is not a blue-chip crypto. So, there is a risk that it might not recover from the sharp drop.
Let’s say you don’t out a stop loss order. Then you are risking your entire capital and trading account. You can blow it in a single trade. That’s why we strongly recommend stop-loss orders for the crypto traders. You can also use trailing stop-loss orders to ensure you surely do take some profit home. Remember, whenever you enter any crypto trade, you should have an exit plan ready. It’s very important for your survival in the crypto market.
Generate Passive Income
When you are in a bear market, the market sentiment is often bad. So, you can take an alternative route to make money via crypto. And the best way to generate such a passive income is via staking, lending, or liquidity pools. For example, you can stake your Bitcoin, ETH, and other cryptos on Visiion.io.
Staking, lending, and liquidity help you generate some income without the risk of losing your initial investment. You can also lend your crypto via DeFi platforms to generate a steady income. Then, there are liquid pools. You can provide funds to decentralized exchanges. In return, you’ll get some rewards from the exchange. But there is a risk of impermanent loss here too. So make sure you analyze it first.
Avoid Overleveraging
Leverage is a great feature that allows you to amplify your gains. But this sword cuts both ways! If you face losses, they get amplified too. So make sure you do not overleverage, especially during the bear market. The reason is pretty simple. As we mentioned earlier, bear markets in crypto are more volatile than in the traditional market.
If you overleverage, you’ll take big losses. The reason is, if the market goes in the opposite direction of what you expected, your losses will mount. Result? Your capital will be wiped out and you’ll find yourself in a debt. Not a good visuals, right? So, it’s very important to learn how you can best utilize your leverage. If you still feel that using leverage is a good idea, keep it under check. Do not risk it all. Remember, there will always be more opportunities in the market. So don’t risk everything behind a single trade.
Follow Market Trends and News
As an investor or a trader, you must have a pretty good idea about what’s going on in the market. The best way to do so is to track trends and news. There are a lot of news platforms, blogs, and even Telegram communities that offer great insights into the crypto market. Follow them, and you’ll be able to make better decisions even in tough and ruthless bear markets.
But why exactly do you should track news and trends? Well, crypto markets react vigorously to macroeconomic factors, regulatory updates, and social media discussions. So, if you know what exactly is going on in the market, you’ll know when to enter and when to exit. Remember, knowledge is power, and power gives you more profitability!
Note: Don’t blindly react to news and buy or sell something solely based on the news. Sometimes, news can be misleading or late!
Get Ready for the Next Bull Run!
Bear markets eventually end. Smart traders use bear markets to rearrange themselves for the next big rally. You can do the same. The only thing you need is to pick the right assets, cut the bad ones from your portfolio, and refine your trading tactics.
Remember, those who take advantage of the bear market often make the biggest gains in the market. Have patience, devise a strategy, and you will be good to go for the next Bull Run!
Wrapping Up
We hope this blog offered you a good insight into how you can operate during bear markets. If you found this blog helpful, feel free to check out the rest on our platform. You’ll find plenty of them useful and helpful.
Till then, happy trading!
