Have you ever wondered what to do when the prices of cryptocurrencies start falling drastically? Maybe you fidget or join those who believe it is the end of crypto. Such massive price falls are not new; they happen in all financial markets. It is usually a period when the market relaxes after having a long period of upward movement.
We will quickly explain what these massive downturns—known as bear markets—are and what you can do to survive them.
What Is a Bear Crypto Market?
A bear crypto market refers to a strong market sell-off characterized by a significant price decline for a considerable time. It is a period where supply exceeds demand, leading to declining prices and low investors’ confidence.
Investors with a pessimistic outlook, anticipating that the market price will continue to decline, are referred to as bears. Trading in the bear market can be challenging, particularly for traders with little to no prior expertise.
The bear market happens not only in the crypto space but also in the traditional markets like forex, stocks, real estate, bonds, etc. However, bear markets in crypto are usually more volatile than traditional markets. This could be because the crypto space is still relatively new and not as established as traditional markets.
Causes and Characteristics of a Crypto Bear Market
A bear market can continue for several years or only a few weeks. It usually starts when investors begin to lose confidence in an asset (due to various factors) and start selling off their holdings. Then, as the price of the asset drops, more investors will begin to pull out of their investments.
Although it is not entirely clear what causes a crypto bear market, factors such as low trading volume, negative sentiments from the government and traditional financial system, and regulatory restrictions, among others, have all played a role in triggering it.
A bear crypto market is usually characterized by negative views about crypto on social media, higher supply than demand for crypto, and distrust of cryptocurrency within traditional finance. All these and more start to make investors lose confidence; thus, the sustained price decline.
6 Ways to Survive the Bear Crypto Market
Knowing some measures you can take to survive a bear crypto market is important. So, let’s quickly consider some of them.
1. Don’t Get Emotional
Whether you see the crypto bear market as an opportunity to buy a token at a low price or the falling price makes you uncomfortable, try to stay calm and don’t make emotional decisions. Decisions that are borne from emotions often lead to regrets.
The bear market tests investors’ patience and endurance; it might even make many totally avoid crypto. However, you should never forget that bear markets do not last forever. The bull runs that follow usually outdo the bear markets. As a result, you need to master your trading psychology so you don’t make decisions out of fear or doubt.
2. Diversify Your Portfolio
Portfolio diversification is important in hedging volatility. You need to spread your portfolio across various crypto assets. You can also explore other crypto earning options like staking. Staking is a simple way to build your portfolio—it protects you from the effect of daily price fluctuations.
Buying reliable stablecoins is also a good idea. Even though stablecoins do not usually give significant profit, there is something in us that feels fulfilled when we know we have money kept somewhere. You can also join projects within a growing crypto ecosystem. It is worth considering projects that can make you earn through staking, borrowing, and airdrops.
3. Dollar-Cost Averaging (DCA)
Instead of investing your money all at once, you can invest in small incremental amounts over some time. This way, you will take advantage of market downturns without risking too much of your capital. For example, If you have a yearly goal of investing $2000 in Bitcoin (BTC), you can invest around $166 monthly or break it down into weekly or daily contributions.
Investing small amounts at different prices will save you the stress of trying to time the market for bottoms or searching for the best prices for trade entries. DCA is the best practice for investing slowly and consistently. It also keeps you from the risk of trying to gain everything all at once.
4. Buy the Dip
Buying the dip means buying at a low price to take advantage of the falling price. The idea is that the falling price will recover at some point, opening up new profit potential.
As much as buying the dip is common in a bear market, try not to buy too early. It is better to buy when most people have sold their holdings in fear. One of the ways to handle this might be to buy in small bits, as in DCA, and also employ price action and technical indicators to get the best entries.
5. Find the Best Entry Points
You can always find good entry points in a bear market by relying on a combination of tools and indicators. This method is useful to traders who seek to make quick profits.
Indicators like Relative Strength Index (RSI), Average True Range, and Fibonacci Retracement can help you discover important points in the market. With line tools and rectangles, you can also draw out important prices where you can invest some of your money in anticipation of a bull run.
6. Shut Off External Voices
With many comments and analyses made by various investors, pundits, and crypto influencers, keeping your cool in a nose-diving market might be challenging. However, your decisions during this time can significantly impact your long-term success. Therefore, be careful about who you listen to and what you read, as they may confuse you to make the wrong decisions.
To maintain a balanced mind, we advise you not to check asset prices daily. Of course, this is easier said than done. However, constantly checking cryptocurrency prices puts you in a position to make emotional decisions rather than logical ones.
Always remind yourself of why you invested in crypto. Never forget that tough times never last. You must learn to keep a clear head for long-term success.
Don’t forget to spend some time working out, learning new skills, and perhaps, learning new crypto trading strategies.
The Future Seems Bright
There is no doubt that massive risks usually accompany bear markets. However, we cannot argue that they form a good basis for your success in the next bull run if you handle them well—a process that requires strategic planning and patience.
No one likes to lose money. Rather than making losses and making wrong decisions in a bear market, you can take measures to manage your portfolio well.
Despite the crypto market volatility, cryptocurrencies are advancing toward widespread adoption. As a result, it is expected that the number of available jobs in the blockchain industry will continue to expand in the years to come. This makes us believe that crypto is here to stay.
This is not financial advice. If you’re interested in any form of investment, you should approach a licensed financial adviser who can give you the best advice based on your needs and risk appetite.
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