How to Stay Out of Massive Losses in the Bear Market: Proven Strategies
The bear market is always a dreadful season for crypto traders. It is usually even worse that venture capitalists and firms hardly find any way to escape the wrath that comes with the market condition. For example, crypto exchange Coinbase has had almost three rounds of layoffs since the 2022 bear market began.
Another exchange Gemini is faced with problems with users hoping they do not end up like FTX. In spite of the whole downside, there are still ways. However, there are still ways traders use to avoid complete investment eradication, which may also help you reduce the losses you may have incurred. Of course, you might say no one controls the market which is true. But no control does not equal no risk management. So, in this publication, we will explain some of the strategies you can use to thrive in any crypto bear market— be it now or in the future. Read on!
Stay in Stables
One of the most popular ways to avoid being part of the causality in bear markets is to convert some of your assets to stablecoins. Stablecoins like USDT, USDC, or BUSD are literally lifesavers whenever a market capitulation lingers.
The interesting or not-so-interesting (whichever it is for you) part is that there are times when there are minimal increases with altcoins, or Bitcoin, and you may be tempted to buy into some of the coins. But, sometimes, the pumps may be misleading, and you could get burnt. So, the wise thing many experienced traders do is to remain in stablecoins. Moreover, there are also “opportunities” in the same season, but you need to be sure before jumping into them.
In any case, it is advisable to quickly get in and out of the trade on an ethical platform, as clarified on https://bitcoin-up.io/. This is to ensure that you do not get ripped off your holdings besides the possibility of seeing the value of the assets you own decrease. At the same time, you must be careful of the stablecoin you decide to hold. For example, Terra’s stablecoin, UST crash was the catalyst that led to the crypto market collapse in 2022. Also, USDD, the stablecoin of Tron, has repeatedly depegged from the dollar. So, do your own research before choosing a stablecoin to stay safe with.
Only Invest in Solid Projects
The bear market comes with fake pumps and dumps. For some investors, these trends are opportunities. However, as someone whose aim is to stay unaffected by the market conditions, you need to be careful of the dips you buy.
Let’s be honest. A lot of cryptocurrencies have no solid fundamentals of real-life use cases. Similarly, a project being down 95% from its all-time high does not automatically mean it is an excellent time to accumulate more.
So what do you invest in? At this point, the most important thing to invest in would be knowledge. Knowledge centred around a project’s fundamentals and utility. You can do this by reading individual whitepapers or the opinions of trustworthy experts. In summary, do not only look for dips but also focus on value.
Like every other venture, diversification is extremely important if you intend to survive the crypto bear market. As you probably know, it is never a wise decision to place 100% of your portfolio in one asset.
Nevertheless, this all depends on your risk appetite and investment objectives. But if you aim to get out of the red market “alive, " you need to consider three kinds of assets. First, you need to pick out low-risk cryptocurrencies.
Then look for those that are high and medium risk. Well, you might say that the crypto market is extremely volatile, and all carry the same risk level. But that is not true. If you check the historical performances of several cryptocurrencies, you will find that some have different risk levels. As it is with others, in-depth research would help you with selecting which is good for you
Use the DCA Strategy
DCA is an acronym for Dollar Cost Averaging. It describes an investment or trading strategy where you accumulate more of an asset as the price decreases. If you seem confused, you need not worry. We will give you a clear example of the process.
So, let’s imagine that we are in a bear market, and the price of Bitcoin is $20,000. In addition, market sentiments suggest that the Bitcoin price is unlikely to cross $20,000 anytime soon. Instead, it would drop further.
All you need to do is to buy some Bitcoin when the price hits $18,500. Then you can add more when it dips further to $17,000 until the asset hits the bottom. The advantage of this strategy is that as the Bitcoin price returns to high levels, you make different and increasing profit percentages. Of course, there would be times when the asset price would go lower than expected but no need to fret. As long as you are patient enough and certain that you are investing in a value-based cryptocurrency, then there is a chance that you would reap the rewards.
Short the Market
In all uprightness, this strategy is not suitable for beginners. However, you can apply this strategy if you have a good understanding of technical analysts or know how to read candles or patterns. It is no news that the crypto market prices most likely drop in a bear market. So, instead of holding on to dear life, you can short assets you deem fit to make a short-term profit.
Meanwhile, it would help if you remembered that respite sometimes happens in bear markets. So, you should not spend the whole time projecting price falls. Instead, develop a strategy void of high risk and use it to your advantage. To short or long the market, you also need to have an idea of the derivatives market or use the options or futures trading feature.
Invest Only What You Can Afford to Lose
This is definitely a quote that you have seen somewhere. The problem, however, with it is that many people prefer to avoid following it. This is usually written on almost every page if you have visited the websites of several exchanges, broker platforms, or trading software. Despite that, there are repeated stories of beginner and experienced investors using a chunk of their income to trade without backup. That could be shooting oneself in the foot.
The thing is — regardless of how much expertise you think you have, you can’t always decide the direction that the market would move. Because of this, it’s important that you set aside only a small percentage of your income to buy these assets. Cryptocurrencies are highly volatile and would most likely remain the same way. So, it would be better to define your investment horizon or keep your accumulation to the lowest. Projects go extinct, and your emotional attachment to one might not be able to save you from losses.
Final Words: Is the Bear Market the Best Season to Invest?
Well, the answer to this question lies in the hands of the investors. If you are a long-term holder, buying cryptocurrencies in unfavourable market conditions might do you a lot of good. However, if you are someone who wants quick profit, then it may be too risky. All in all, we can’t be the ones to decide for you.
Even the likes of investing guru Warren Buffet admits that some elements of luck play a role in the process. Therefore, the decision if the bear market is a great time to invest or not lies in your hands. But there is something you need to note. Of course, a bear market can create scary times, but it is better if you keep your anxiety in check. This would help you manage your emotions and, subsequently, make better trading decisions.