Bitcoin has lost almost half of its value in less than three months. Altcoins bled, stocks plummeted, and the general macroeconomic context does not foresee any form of recovery for the near future.
But even in the darkest times, there is always even a silver lining, and when bears take over the crypto market, there are still ways to survive and come out of it stronger.
What Is a Bear Market?
A bear market is a market condition in which asset prices have been declining for a long-time and are likely to continue to plummet further. It is the complete opposite of a bull market where prices rally and hit new highs.
Bulls and bears are the two main animal metaphors used to describe market movements. The names came from studying how these animals fight their opponents.
Bulls use their horns to charge and push their victims up from below. Bears, on the other hand, use their paws to smack an opponent down from above.
Therefore, a bear market is associated with investors’ pessimism about an assets’ future prospects, and show little to no interest in investing. On the contrary, investors rather sell their assets in order not to lose further money, meaning that in turn pessimism only increases, and consequently, asset prices drop further.
There are occasions in which bears will dominate a single asset, and sometimes take over the market as a whole. As a rule, bear markets are typically longer, and run deeper than market corrections, which are usually sharp and relatively short by contrast.
How to Survive an Enduring Crypto Bear Market?
There is no precise way to tell how long a bear market will last. It could potentially take months, or even years for asset prices to return to their original values.
Before bulls return and give rise to a new uptrend phase of the market, there is first a harsh period to survive. The good thing is that there are some things that anyone can do to protect themselves during such a bear market. It may even be possible to make some nice profits during the declines.
Here are some things that each crypto investor can do in times of market uncertainty, panic, and drastically falling prices.
Hodl, Hodl, Hodl
Human psychology plays a major part in our decisions. When the markets seem to be collapsing and our losses mount by the days, sometimes even by the hour, it seems impossible to keep a clear head.
This is perfectly normal, we instinctively want to sell a plummeting assets before the situation gets worse. But then by the same token, we would also pour our money into assets when they are high, just because we are fearful of missing out on a profit.
Markets go in cycles and they almost always recover. Historically, they even tend to rise higher than ever before after a decline. Bulls will come back one day and asset prices will rebound to their initial levels.
Thus if you sell assets after they lose a major portion of their value, it would likely cost you more time and effort to return to the capital you initially invested and accumulated. it’s often better stay calm, refrain from checking the price charts manically, live your life, and let the time work its magic.
Stake or Lock Assets
You can’t do much when the markets are free falling, but your cryptocurrencies can. It is still possible for them to generate a passive income, even if their prices are in decline.
A wide variety of decentralized finance (DeFi) projects offers multiple ways to earn passive income from the digital assets you hold.
Various blockchains allow participants to earn additional cryptos by contributing to their network stability via staking. Multiple protocols offer yields for providing liquidity to their liquidity pools, not to mention the lending of digital currencies to generate passive income and compound interest during a market downtrend.
If you’re looking something more proactive during the bear market, and feel confident enough with your trading skills, short-selling could be the option for you.
Short-selling is a common way to make money in a bear market. It is a short-term selling strategy through which investors can make a profit from price drops.
When pessimistic market sentiments are dominant, short-sellers often expect the market to fall further. Therefore, they borrow assets at a fixed price, sell them immediately, then re-buy them when the price drops before returning to the lender. As the investors sold their assets at a higher price than they bought, the difference between the prices is considered a profit.
However, short-selling is a complex investment tool that requires in-depth knowledge, and is considerably risky for inexperienced investors. If the market suddenly changed direction and went in an upward trajectory instead of plummeting, the losses incurred by such a short squeeze may prove to be unpredictable.
Another way to capitalize on a bear market is by increasing your digital holdings. When the markets fall, prices fall with them. This means that you can buy the same asset for less, and thus decrease the average cost of your investment over time.
One of the easiest strategies to accumulate holdings when bears dominate is dollar-cost averaging (DCA). This is all about investing a consistent amount of funds into the same asset at regular time intervals.
As the markets move in cycles, the bulls will eventually replace bears, and prices will start rising again. This means that investors who used DCA not only increase their portfolio at a lower average cost of investment, but they will quickly recover and generate higher gains when the market is in the green again.
Dollar-cost averaging certainly lowers the risk of losses when the markets drop, but it does not protect you completely. Should the market continue to fall over a longer period of time, so too would the the losses increase.
DCA also does not save you from poor investment choices. If an asset is doomed, it is doomed. Therefore it’s always pertinent to do your homework and search for investments that have performed well over long time periods.
Diversify Your Portfolio
When you are deep in loss and despair, the idea of searching for new investment opportunities might sound like a paradox. But it doesn’t necessarily have to be that way.
Since there are thousands of different digital assets, including non-fungible tokens (NFTs), you never know which will recover sooner and stronger than another.
Crypto portfolio diversification is often a helpful strategy of balancing investment risks. It means your investments are spread across different classifications of digital asset, and not relying on a single one. This lowers the risk of losses, and increases overall profit potential.
When the bears come, it might be late too late to rebalance your existing crypto portfolio. Most likely, all you can do is follow some of the above-mentioned methods to come away unscathed.
But that doesn’t mean you can’t look for new investment options to add to your crypto portfolio. Research the market for viable new asset types and strong projects that could become winners over the upcoming months or years.
Why You Should Care
Bear markets are inevitable and can be very painful. It is undeniably more difficult to make money when the markets are falling than during a bull run. But bears also bring opportunity, and, most importantly, lessons. Since successful investing is a long road, we can use these periods to increase our knowledge, and also our capital.