Every financial market undergoes its bear and bull cycle, and the crypto market is no anomaly. Currently, the crypto market is witnessing one of its worst bear market phases. The market capitalization has been slashed to a third since the market peaked in November 2021. There is no way to sugarcoat that the year has been challenging for crypto assets. However, bear markets can also be a good opportunity for investors to earn good profits. Before we engage ourselves in that discussion, let’s first discuss what is a bear market.
What is a bear market?
A bear market is characterized by a sustained decrease in the values of the key assets within a sector or across several sectors. Bear markets happen on conventional and crypto markets when the market declines by at least 20% from recent highs.
Looking at the decline in the prices of Bitcoin and other top crypto assets might help you spot a bear market. When world financial markets like the S&P index, etc., are in decline, we can expect a similar decline in crypto prices. Also, due to their generally high price correlation to Bitcoin, small- and mid-cap altcoins also suffer adverse price losses due to the decline in the prices of the top assets, leading to an overall decline in the market. When this decline occurs for a prolonged period, we call it a bear market.
In bear markets, supply outweighs demand, sentiment is gloomy, and prices are falling. Trading in bear markets can be challenging for the novice or new traders. Additionally, determining the precise price bottom to “buy the dip” or predicting when a bear market will conclude are both challenging tasks.
Why invest in bear markets?
No one enjoys seeing the value of their portfolios decline, so bear markets can surely be frightening for newbies and even seasoned investors. On the other hand, when assets are trading at a discount, bear markets might offer chances to invest money for the long term.
However, bear markets are fantastic for investors to enter the market as most assets trade at a discount. Typically, newbies enter the market on social excitement or out of FOMO (fear of missing out).
Additionally, when prices experience significant reductions, bear markets present a favourable chance for shorting assets. Shorting assets is a strategy seasoned traders use to take leverage from the significant volatility in the crypto markets.
Bear markets are the finest times to invest for individuals with the resources required to buy many coins and wait for higher profits. Consider it this way: because they are all relatively low in value, you have the rare opportunity to buy various coins at discounted prices.
We know that the market will eventually recover, and prices will climb shortly, even though these prices will remain at this level or fall much further. Therefore, why put off investing when you may buy some valuable coins at a discount?
Source: Pixabay/ Bull run can help crypto asset holders after a bear market
The Bull run after the bear market is the strongest. There is also a short-term technique that you can use in a bear market if you are an investor who lacks the resources to wait a long time for realized gains. History, research, and statistics have all demonstrated that the first bull run after a notably protracted bad market is always the largest, which suggests that investing in crypto during the bear market will likely result in a swift turnaround.
Of course, it’s impossible to forecast when the bull run will start, so it’s advisable to use this investment technique with caution and conservatism. It’s crucial to understand that investing during a current bull run is a bad decision because swift pullbacks and market corrections will result in low returns.
One of the fastest market capitalization gains in recent history occurred in the crypto sector, followed by the present bear market that has turned off many investors. However, there are many reasons why buying crypto assets during a down market is a wise course of action, including the chance to do so at a lower price and the next bull run.
When the bear market finally ends will be determined through time, but those that invest now will benefit the most from the subsequent bull run. Investing in crypto during a bear market may be your ideal investment plan if you have the patience and time to wait out the erratic market.
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Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.
