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The Why and How of Investing In a Crypto Bear Market

Key Insights:

  • When the markets are experiencing sustained declines they’re called bear markets.

  • With Bitcoin and the global crypto market cap down by over 50% from its all-time high. 

  • This article looks at the art of investing in a bear market. 

Bear markets might be stressful for investors but they can be seen as good investment opportunities to buy in at lower prices.

In this article, you will learn what exactly defines a bear market, how you can prepare for it, and how you can profit from it.

While traders and investors dread the long and cold bear markets as though they’re the grim reaper, bear markets aren’t as bad. Sometimes, a bear market could provide decent opportunities to enter the market with lower risks, higher returns, and ‘dip-buying’ opportunities.

Nonetheless, bear markets give rise to notoriously volatile price actions and extreme losses in some cases, so without proper research, one could easily get Rekt during these times. This article will deep dive into the what, how, when, and why of crypto bear markets.

What is a bear market?

In simple terms, a bear market is when the prices of the prime assets of a sector or multiple sectors continue to decline for a considerable amount of time. For traditional as well as cryptocurrency markets, bear markets occur when the market as a whole experiences at least a 20% drop from recent highs.

A bear market can be identified by looking at the fall of the S&P 500 or Nasdaq Composite or bitcoin price for cryptos. Owing to the fall in the price of the top assets, small-cap and mid-cap assets also experience bearish price losses due to generally high price correlation.

During bear markets, supply is greater than demand, confidence is low, and prices are on a downtrend. Bear markets can be tricky for inexperienced or new traders. Additionally, it’s relatively difficult to predict when the end of a bear market or to find the exact price bottom to ‘buy the dip.’

Now comes the crucial question, are we in a bear market?

Are bears leading the market?

The global crypto market capitalization was down by almost 60% from its all-time high of $3 trillion as it stood at $1.25 trillion at press time. The top cryptocurrency by market cap, bitcoin (BTC), was down by 56% from its all-time high made in November last year.

While ether (ETH), the top altcoin, was down by 58% from its all-time high price of $4,847. Thus, it seemed like cryptocurrency holders were, in fact, in a full-blown bear market. Additionally, the rangebound movement of the larger crypto market cap and most top coins’ prices confirmed the bear market doubts.

Notably, the global crypto market was experiencing double-digit percentage losses, with BTC dipping to as low as $25,000 briefly on 12 May for the first time since July 2021. The bearish market sentiment, lower social volumes, and the fall of the Terra ecosystem have many investors understandably worried.

This, however, doesn’t mean that you cannot function in a bear market. After all, the crypto market never stops or sleeps. So, how and why should you invest in a crypto bear market?

Why invest in bear markets?

Bear markets can undoubtedly be scary times for newcomers and even older market players, as nobody enjoys watching the value of their portfolios go down. On the other hand, bear markets can provide opportunities to put money to work for the long run while assets are trading at a discount.

Usually, newcomers enter the market on social hype or out of FOMO (fear of missing out); however, bear markets are actually good opportunities for investors to enter the market as most assets trade at a discount.

Additionally, bear markets provide a good opportunity for shorting assets as prices see large price drops. However, since the crypto markets are highly volatile, shorting assets is something experienced traders take up. While shorting coins could be profitable, it comes with its set of risks.

How to invest in a crypto bear market?

While there are no instant tips or quick strategies for surviving in a crypto bear market, analysts and traders often recommend some strategies. For instance, portfolio diversification can help reduce investment risk by spreading your capital among different assets during a bearish wave.

That said, thinking long-term would always help navigate through bear markets. Many new investors make the mistake of exiting early due to short-term losses, which could be a bad way to go about bearish market swings.

Lastly, trying to always catch the bottom could be futile in a market as volatile as the crypto space. Sometimes, a bear market ends as soon as the bottom has been reached. In an aim to catch the bottom or buy the final dip, one may end up investing at a higher price when assets start to recover.

That said, in the end, it is undeniable that bear markets are slow and unpredictable and are usually influenced by many external factors such as economic growth, investor psychology, and world news or events.

While advice and recommendation about how to invest in bear markets are aplenty, it’s always crucial to DYOR (do your own research).

This article was originally posted on FX Empire