- A market is called Bearish, when the prices drop below 20% or more and stay there for a long period
- An investor can use some strategies to survive the crypto bear market
Something investors have learned after spending years in the crypto market is its volatility. Everyone thinks of himself as an expert in investing when the prices are booming, giving them huge returns. However, the real test starts when the prices start to fall and stay down for a prolonged period as this makes the market go through fear. This unfortunate crisis is known as a bear market.
Technically a market is declared bearish when the prices fall by 20% or more from their latest high and remain there for a prolonged period. These bear markets are associated with investors’ low confidence and increasing fear and pessimism. They quickly try to sell off their assets, ignoring any good news, pushing the market further down. A bear market can be easily identified with the following symptoms:
- Assets prices falling lower than 20% for a long time.
- Investors lack confidence
- New investors fleeing the market
- FUD (Fear, Uncertainty, and Doubt) and bad news in the air.
The crypto market has witnessed several bear runs before like:
The one from Q4 2013 to Q4 2015
This 2-year bear market was mainly caused because of the increasing fraud cases and strict government regulations during that period. Silk Road, an illegal digital platform was raided by the FBI and forced to shut down. Mt Gox, the largest exchange firm around the time which handled nearly 80% of all the bitcoin, filed for bankruptcy after discovering some hacks In their server that maliciously transferred thousands of Bitcoins to fraudulent accounts. China took some strict actions against the crypto market and announced a complete ban in the country. However, the launch of Ethereum and Japan legalizing crypto trading pushed the market to a bullish side.
The one from Q4 2017 to Q4 2018
In this period of 1 year, Bitcoin’s price went down from $19,279 to as low as $3242, raising doubts among investors regarding Bitcoin’s future. The reason for this bearish trend could be the interest rate hike for the third time by the Federal Reserve in 2017. This was followed by the hack of Coincheck which lost assets worth $500 Million. However, the rising NFT popularity and market, along with PayPal’s announcement to allow crypto use, once again lifted the market.
Crypto Strategies During Bear Market
Instead of fleeing the market, investors can use some strategies which can help them save their portfolio and survive the bear market.
Dollar-cost Averaging
If you are a long-term investor, looking for a minimum 10-year run, then you can take advantage of a dollar-cost averaging strategy. Here, an investor divides all his investment amount and purchases an asset at regular intervals of time not bothering with the price of the asset.
Portfolio Diversification
A wise investor must not invest all his money in a single crypto project based on its current growth. There are many crypto projects in the game and investors should choose multiple projects based on their goals and risk appetite. This allows them to reduce their risks and prevents them from hitting rock bottom when their only invested token enters a bear market. Investors can choose their pool of tokens by estimating their potential growth based on future projects and plans, history of price movement, and its highest price hit in the market.
Staking
Recent blockchain networks like Cardano, Solana, and Polkadot, which run on the Proof of Stake consensus, allow users to stake their coins in a liquidity pool, which rewards them with some tokens. This is a good practice to ensure passive income even in a bearish market. As the tokens are locked for a period in the liquidity pools, this also prevents panic selling.
Stablecoins
Stablecoins such as Tether, USDC, and Binance USD are backed by fiat currencies making them less volatile in the changing market trends, compared to other coins. In a bear market, investors can hold their assets through stablecoin and wait for the market to rise.
Final Thoughts
Investors need to keep their emotions aside during trading, and especially, in a bear market, where everyone is a pessimist and fears the worst. Remember the reasons for your entering the crypto market in the first place and stay focussed on your long-term plan and goal.