The cryptocurrency market is currently in a turbulent phase, with prices plummeting and investors panicking. Major coins like Bitcoin and Ethereum have shed more than 70% in value from their all-time highs, inducing speculations about the extent of this winter period. While the overall global macroeconomic environment is in a glum state, the crypto bear market poses further risks to investors due to its highly volatile nature.
In light of this broader market decline, it is high time to update our crypto strategies according to the current scenario. Undoubtedly, navigating the bearish waves requires a more advanced set of skills compared to trading in bullish markets. Read this article to learn more about the intricacies of a crypto bear market, along with the five best ways to survive in it.
The term “crypto bear market” refers to a market phase when there is a prolonged drop in the prices of digital assets. During a bear market, many factors, such as supply/demand imbalances and large sell-offs, come together to trigger an extended price crash.
Moreover, another term called “crypto winter” stimulates a higher fear in the crypto community compared to a simple bear market. It is because crypto winter signifies a more alarming market juncture where prices steeply decline over several months or years, with most assets shedding up to 90% in value.
For example, the last crypto winter is believed to have occurred from 2018 to mid-2020, when Bitcoin’s price dropped more than 85% in value from its last peak. During that icy phase, some other popular altcoins also lost up to 95% relative to their all-time highs.
1. Control your nerves – Avoid panic selling but take the available profits
During a market bloodbath, it can get hard to maintain your level-headedness. As real money is involved, deciding whether to stay in the market & wait or get out as soon as possible can be excruciating. Only the traders who carefully analyze the market situation and objectively assess the possible implications come out unscathed from such a fiasco.
Amid a bear-dominant market, you must take a step back and survey all the available options. Always try to control your fears and avoid panic selling, but you should also not foolishly stay still without a plan. For instance, if your portfolio is still ‘in profit,’ you can consider liquidating a percentage of gains to avoid losing them all.
Moreover, a golden rule is to draft your investing plan and stop loss or take-profit points at the very start to avert a dead-lock later on. From the start, you should be clear about your limits and remain fully prepared for different, positive as well as negative, scenarios.
2. Do not hurry in buying the dip
One of the most common mistakes traders make is that they try to buy every possible dip. However, the truth is that no one can actually know the exact bottom point.
For example, in the current crypto bear market, prices have been moving downwards for the last 7-8 months with no break. Investors who tried to buy during this period are now stuck in the middle, with their assets shrinking.
With that said, there is no room for gut feelings in the harsh crypto waters as millions of retail investors as well as big fish are involved in it. Because of extreme crypto volatility, you should wait for the dust to settle and thoroughly scrutinize the market climate before buying the potential dip.
3. Consider secondary earning methods – Stablecoins and staking
When prices are declining, you need to be innovative and look for additional earning methods. For instance, staking can be a good way to earn passive income from your digital holdings even under bearish conditions. If you are unfamiliar with this term, staking is a process where you lock the Proof-of-Stake-based coins and earn rewards in exchange. A large number of staking coins like CAKE, ALGO, and SOL can be accessed on most crypto exchanges for acquiring significant staking rewards.
Besides staking, you can also turn towards stablecoins to take advantage of their fixed annual yields. Backed by fiat reserves, stable coins like USDT and USDC maintain a constant value irrespective of the broader crypto market volatility. Resultantly, these assets tend to be a viable option for earning a safe, passive income amid market turmoil.
4. Rebalance and diversify your portfolio
Diversification can remarkably reduce the risk exposure during a crypto bear market. By spreading your investment among different assets, you can cushion some degree of the negative impacts.
Note that even under bad market conditions, some coins can still perform well. You should look for such promising crypto projects and rebalance your portfolio accordingly. Simply said, if you spot certain cryptos with less potential on your portfolio, it might be a good idea to reduce their weightage and stride towards more encouraging assets.
5. Make use of the dollar-cost-averaging technique (DCA)
Dollar-cost averaging is a time-tested, long-term strategy where users buy small amounts of an asset over a specific period. The technique is designed to trivialize the volatility of financial markets by averaging out the prices of securities.
To illustrate, suppose you want to invest $5000 in Bitcoin. As per DCA, you would invest portions of this amount, say $500, at regular intervals rather than investing all at once.
In this way, although you may miss some good buying points, some unfavorable buying points can also be avoided. Hence, this “averaging” scheme can come out quite handy in crashing markets.
Crypto is a fast-moving and never-sleeping market that can easily overwhelm anyone. It might give you monumental gains at one point and wipe out all of them in the next bearish wave. Remember that it is your responsibility to stay sane when navigating this stormy market. For this to happen, you must adopt a suitable strategy even before starting and invest only what you could afford to lose. Like all investments, crypto has its risks, and you should be fully prepared to deal with all repercussions tacitly.