A bear market, in simple terms, refers to a time in the market when the valuation of any crypto asset has been on a steady decline or fall over a long period of time. When the market continues to see a decline of 20% or more over a prolonged period of time, the phase can be considered a bear market.
The current bear market phase has resulted in the crypto market bearing double-digit losses within a few months. The valuation of some major contenders in the market, such as Bitcoin and Ethereum, has fallen by more than 60%.
Predicting when a bear market will start or end is almost impossible, and making a successful trade in such an environment is more difficult and risky. Of course, this can seem like a scary time for investors in the crypto market, but if you are careful enough, you can take advantage of the bear market and turn it into an opportunity instead of a liability.
The following strategies can act as helpful methods to help you in trading during the bear market and help you in gaining profit instead of loss:
Use Dollar-Cost Averaging (DCA) to Buy the Crypto Dip
Investors should practice holding back fiat currency or stablecoins with dollar-cost averaging to buy the crypto dip. When the market has a massive negative drop, buying a particular quantity of any cryptocurrency in the marketplace is referred to as ‘buying the dip.’
The objective behind this strategy is that when the prices rise, the investors will get away with a good percentage of profit. One can actively do this through dollar-cost averaging, which means dividing your spare resources into smaller bits and trading many times throughout a certain time period.
By dollar-cost averaging any crypto asset, you get to make a profit if the asset price rises during the time frame that you are investing in. For example, you decide to invest a total of INR 20,000 in a certain crypto asset of your choice that is currently valued at INR 500.
According to DCA, instead of investing the whole amount all at once, you break the amount down to, let’s say, INR 2,500/month over the course of 8 months. The price dips suddenly from INR 500 to INR 450, INR 400, INR 350, and so on. Later on, it reverses and rises to INR 550, resulting in a profit.
Investing smaller amounts over a set time period enables you to avoid huge losses during bear market phases and lets you get the low-cost benefits from this strategy. You can get the benefits while not investing too much capital into it all at once.
Keeping your emotions in check during a bear market
A bear market is an extremely difficult time in an already volatile marketplace. The unpredictability of it can easily set off a state of panic. If you cannot keep your emotions in check and be mindful of when, where, and how much you are investing, you will have to deal with huge losses instead of profit.
While trading in the crypto market, especially during a bear market, you should have enough knowledge about the situation and be aware of the risks. Letting emotions like fear or greed cloud your judgment will only result in rash decisions. You should be aware of the trade risk while investing and actively set a proper stop loss to know when to sell off the asset.
If a particular crypto price falls, you can short sell it
Short selling simply refers to borrowing any crypto at its current market price and selling the asset for a high price as soon as possible to repurchase it at a lower price later.
Short selling is the opposite of what crypto traders usually aim for. You gain profit even when the valuation is down by buying the crypto yet again at a lower market rate. You return the amount you borrowed, and the difference between your previous selling price and your current buying price will be your profit.
For example, you borrow any crypto asset at INR 10,000 (market price at the time of borrowing) and sell it off as soon as possible for INR 20,000 (your selling price). The valuation drops, and you buy it for INR 5,500 (current buying price). INR 10,000 will be returned to the source from which you borrowed, and the remaining INR 4,500 (difference between previous selling price & current buying price) becomes your profit.
Investing your time in researching & Increasing your knowledge
You need to be well versed with the market to actively deal with a bear market or any other challenging feat that you may face while trading in the crypto market. Research about cryptocurrencies, trading skills, market phases, the strategies to cope with them, etc., can help you understand what the market is all about and save you from making the wrong choices when dealing with a bear market.
By investing in multiple cryptocurrencies, you can diversify your portfolio.
Thousands of crypto assets exist within the market, and it is hard to predict which one will provide you with maximum profit. The tip here is that you should invest in multiple cryptocurrencies and stablecoins that you deem profitable.
This can help you in a bear market by bringing a wide range to your portfolio, help in gaining profit, and keeping the valuation of loss to a minimum due to low trade price. To determine what cryptos you can invest in, you should be on the lookout for the crypto’s past performance and their all-time high valuation. This can give you a rough idea of what that crypto is worth.
The crypto market’s volatile nature can be tricky when challenges like the bear market can hinder your process and result in losses. The strategies that you can adopt to survive this phase are to increase your knowledge about the bear market, research the cryptocurrencies in the market, and be careful of how much you are investing. If you are careful & keep these strategies in mind, you may be able to pass the bear market phase smoothly.
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