The Tips for Surviving in Crypto Bear Market

Fredrick Awino

Cryptocurrency

25.08.2022

335 Views

The year 2022 has been one full of mixed experiences not only among the ordinary people but also techies. Everyone had been for a better part of January in high spirits to successfully emerge from ravages of Covid-19.  But, cryptocurrency, especially bitcoin recorded a great tumble in prices yet.

The events of bitcoin staggering especially when the Russia-Ukraine conflict broke out really sent cold shivers down the spine of most investors. Actually, its likely that some faint hearted investors or newcomers already blamed themselves for believing so much in the riches that crypto promises. Even as bitcoin makes a promising comeback, it is time to really rethink ways of surviving such slumps.

Tracing the heartbeat of a crypto investor

Despite traders and investors going miles by making this year about metaverse, NFTs, and crypto, we were still thrown to crypto winter. Also, traders are trapped in a crypto bear market whirlpool. Therefore, as a trader or an investor, you should know the tips for surviving in a crypto bear market.

Bear markets are a representation of the highly dreaded period for any investment cycle. Besides, this kind of market does bring a feeling of uncertainty. However, even during this cycle, investors can still make some gains.

The following are some of the tips for surviving in such kind of a market:

Staking Cryptocurrency

For any crypto portfolio, dwindling gains are not ideal. However, in case you get a long-term strategy of holding, then as a trader, you may cushion reducing prices by staking your crypto. Through this, you may earn on it.

In generating a passive income, you will lock your crypto in a certain blockchain for a period of time. Through this, you will earn, irrespective of the value. Even when the bear market is taking shape, most of the DeFi protocols and exchanges still offer great APYs for staking.

As a trader, you have to remember that there is a risk to doing this. For instance, in case the underlying asset is not growing in value. However, even with these instances, you may still increase your assets by staking. Besides, the best way of reducing risk is by staking for a short period and choosing a platform in which staking rewards are regularly paid out.

Diversify your portfolio

Portfolio diversification is important for any market. It is a way of spreading risk, thus, the need of spreading the portfolio across different crypto assets. The simplest way of building your portfolio is by staking. The reason is that it protects you as an investor from the daily price fluctuations in the market.

Another great idea is purchasing reliable stable coins. Although the stable coins are not so profitable, you will feel fulfilled when you know that you have some money somewhere. Besides, you may be part of a growing crypto ecosystem. Such kinds of projects may earn you money through airdrops, borrowing, and staking.

Recognize the Growing Market Segments

In a severe market downturn, some cryptocurrencies can retain their value. These are mainly tokens and coins linked to the market segments that see substantial growth. For instance, despite the market slumps, cryptos linked to online gambling and the video game industry have done well.

Furthermore, the coins linked with cross-chain communications, fan-based NFT marketplaces, and DeFi are worth evaluating. However, be sure to have some knowledge regarding a certain market segment. With some knowledge, you will understand the way it works. Additionally, it is important to analyse the performance of certain cryptos during past market swings. For example, some of the cryptos have a history of losing less money during bear markets while others have more.

Secure your Portfolio as well as HODL

Having an idea in a crypto investment as well as making important decisions during a bear run will take you a long way. Given crypto world volatility, you should secure the crypto in your wallet. HODL means keeping Ethereum, Bitcoin, and other top cryptos instead of selling them during the bear market.

As a trader, you should ensure that the crypto you are holding is not from the “pump and dump” schemes. Even though it is challenging to predict the specific crypto that may bounce back or even the one that will go down, continue watching the news and trends. Through this, you will have an idea of what is happening in the crypto world. Do not be quick to sell your crypto because of the rumors that you have heard from other people.

Invest in Yourself

As a crypto trader, I know you have highly sacrificed in acing the game of investing and trading. During the crypto bear market, you should highly focus on investing and building crypto friendships. This will make you connected to other people.

Furthermore, you should invest in your mental and physical health. You should not be so worried that you cannot concentrate on doing other things. This period is the recovery phase and it will help you push the odds. Remember, there are some things that are more important than money like relationships, health, friends, and family. During the crypto bear market, you should use the time to also strengthen your personal growth.

Invest in Defensive Assets

When the bear market is prolonged, some firms do tire, especially the younger and smaller ones. However, the established ones have stronger balance sheets to withstand the harsh conditions. Thus, when investing in stocks, choose the companies that have been in existence for a long period. They are defensive stocks. Besides, they are usually more reliable and stable in a bear market.

Establish an Extra Income Stream

I know as a trader investing in crypto and experiencing a bear market for the first time you are so anxious. You do not know what may happen next. It is challenging to be calm in such a period. Therefore, while investing in crypto, you should have a passive income. Even though some crypto enthusiasts deny it, it is a great idea.

Having an extra income is a good way of having money on hand as well as during crypto winter. In case the mainstream income is affected for a long period, then one may suffer bad financial decisions. Therefore, you should analyze your stand. Besides, you should only invest an amount of money that you may afford to lose.

Utilize the Dollar Cost Averaging (DCA) in Purchasing Crypto Dip

The Crypto market is volatile meaning it is easy to choose the wrong side of the market. However, the bear market does not mean that the traders just watch their investments go down. Investors having fiat currency or stable coins reserve and enough capital in a bank account may purchase a dip when the market is bearish. The idea is to purchase a dip when the prices fall and get high returns when the prices rise back.

DCA has proven to be the best strategy during tough bear markets. Although it is simple, it is a long-term strategy in which you continue buying small assets amount in a period of time irrespective of the price.

Avoid Shorting

Shorting refers to the technique of traders using profit from falling crypto prices. Ideally, it is a good fit in a bear market when prices reduce. Most experts advise people to avoid shorting as it may result in unlimited losses or even liquidation. It is a fundamental problem and no amount of experience may prepare for rude shocks in case the unexpected happens.

When you purchase crypto, you may not lose more than the amount you invested. For instance, if your buy $ 100 worth of BTC, you can only lose the same amount. However, shorting is the opposite of this. For instance, if you short a coin worth $100, the maximum amount you may earn is $100. However, in case the price commences to increase and the uptrend continues, your losses will pile up.

Become an Expert

A bear market is the greatest time to learn and increase your crypto knowledge. Instead of buying into the pressure, it is time to get valuable insights by getting more information on blockchain and crypto. Get to learn about smart contract data.

Smart contracts are the foundation of dApps, NFTs, DeFi projects, and crypto. They are the agreements that allow users to interact without the need for a legal middleman. After signing a smart contract, it cannot be unsigned. Therefore, it is imperative to know the things you are agreeing to.

Furthermore, it is time to know the way of sizing up an NFT project. Digital ownership is changing, thanks to NFT. New assets have their own nuances and there is a potential for the industry to grow. Therefore, getting information regarding NFTs is important. It will result in a solid success in case the market moves.

Lastly, you have to know your wallet. This is not about keys. Instead, it is about the best ways of securing them. The ledger devices offer the best protection in the market. This is done by improving the ledger hardware, strong security components as well as a team of security experts.

Invest in Derivatives

Derivatives refer to complicated financial instrument, which allows investors to reduce risk. Besides, they can make money when the market prices are reducing. Some of the common derivatives include options and futures. Derivatives assist in reducing risk since if a trade results in a loss, then the investor is not obliged to execute it. The investor only loses the fee for buying the option or future. However, this is just a small amount.

The Reasons Behind the Occurrence of Crypto Bear Markets

Bear markets are just natural like bull markets.  One of the reasons why this happen is when investors take on too much leverage. For instance, the BTC leverage ratio was high in January 2022. It means that the traders took on more risk using debt in financing futures products.

Furthermore, new crypto regulations may have made it happen. The big changes that have taken place in the crypto regulations resulted in an upset in the market. An indication is when China banned the mining of crypto in 2021. The market was highly affected.

Another reason is due to lack of liquidity. In case a leveraged investor liquidates his or her asset, the whole liquidity of the market is affected. Besides, in case a whale sells, the market is highly flooded with more supply than demand. This pushes the prices to be low.

The crypto influencers have played a role in the occurrences of a crypto bear market. For instance, Elon Musk has been creating havoc in the cryptocurrency market whenever he tweets. However, these days, his opinions do not hold much value.

The Severity, Genesis, and the period Bear Market Last

Bear markets are linked to the global economy. In short, this means that they take place after or before the economy goes into recession. The sustained price dip that has been taking place in the crypto world is not the only indication of an ongoing bear market. However, other economic indicators can be considered. They include unemployment, inflation, as well as interest rates.

The relationship between the bear market and the economy is so simple. For instance, in case investors notice that the economy is shrinking, they are prepared that the corporate profits will also soon commence reducing. This kind of pessimism makes them sell their markets making the market to even go lower.