How To Survive A Bear Market

Jesse -

There’s no denying that we are in the midst of an icy crypto winter, plagued by several platforms’ demises this year, not to mention the global economies and geopolitical crises.

While now might feel like a time to despair, hold your chin up high as now is a great time to re-evaluate your trading strategies and potentially implement time-tested strategies that were built to pull your portfolio out of the trenches.

What Is A Bear Market?

A bear market is when markets see an overall decline in asset prices, usually marked by 20% drops. This usually takes place over an extended period of time, anything from a few weeks to a few years. Bear markets can take place across all markets, and it is not unusual for them to be accompanied by a recession or other economic downturns.

On the bright side, bear markets typically last for a much shorter time than bull markets (when the asset prices increase).

What Causes A Bear Market?

While one can rarely pinpoint the exact catalyst for a bear market, some causes related to previous bear markets include the following:

  • Market bubbles bursting
  • Wars
  • Pandemics
  • Sluggish economies
  • Geopolitical disasters
  • Radical paradigm shifts in economies

This particular bear market wasn’t helped by the demise of two platforms this year, Terra and FTX, and the rising global inflation rates. As investors lost confidence in the market or required the cash flow, many liquidated their positions sending the market prices tumbling.

What Is A Crypto Winter?

A crypto winter is the term given to a prolonged bear market, several months or more. During a crypto winter prices also tend to dramatically lose value, with anywhere from 80-90% of an asset’s value dropping.

As a general rule, traders can typically see the onset of a bull market or crypto winter by decreases in Bitcoin’s price. Being dominant in the market, the biggest cryptocurrency tends to signify trends.

Tools To Survive A Bear Market

Below we run through several tools you can use to refocus, recenter, and come out of this bear market thriving.

Step 1: Don’t Panic

Clear your head and wipe the emotion off the table. Trading decisions based on emotion instead of logic are never a good idea. Remind yourself why you invested in crypto in the first place.

Step 2: Evaluate Your Trading Goals

Before you entered the crypto market you (hopefully) outlined a set of intentions and goals you wished to achieve. Reevaluate these and ensure that you’re plans are still aligned.

Step 3: Build A Bear-market-friendly Trading Strategy

Before you begin exploring bear-market-friendly trading strategies, first and foremost establish your risk tolerance so that you know in which direction to go. Below are several trading strategies for you to consider.

  • Play It Safe

While it might be tempting to pull your money from the markets, realize that your “losses” will only be realized once you do this. This poses as a great reminder to never invest more than you’re willing to lose. However, by leaving your money in the assets it is currently invested in, when the markets return to “normal” you will recover the preconceived “losses”.

Don’t pay attention to FUD and FOMO, instead invest in bigger cryptocurrencies like Bitcoin and Ethereum.

  • Staking

Staking is a great means of putting your crypto away and allowing it to gain interest. Staking involves locking a cryptocurrency in a PoS (proof of stake) blockchain for a certain amount of time and earning rewards for doing so. You’ll need to compare cryptocurrencies and staking rewards to find the best option available to you.

  • Dollar Cost Averaging (DCA)

If your trading strategy is to slowly and consistently accumulate digital assets, usually investing the same amount of money each month with little regard for the prices, then soldier on strong one, this is the best strategy to employ in a bear market.

  • Medium-Risk, Profit Seeking

If you’re determined to see profits above all else and have a medium aversion to risk, there are a few strategies you can implement. This is definitely not for everyone so ensure that what you’re doing feels right for you.

  • Diversify your portfolio with a mix of reliable and risky assets.
  • Seek reliable assets by conducting thorough research and examining past trading patterns. While all markets might be down, how has this asset performed after previous bear markets?
  • High Risk, High Reward

If you’re more prone to chasing risk than avoiding it, consider these universally trusted strategies that work perfectly in a bear market.

  • Shorting assets, where traders bet on an asset’s price depreciation. Proceed with caution.
  • Options trading (advanced), where traders buy contracts that allow them to buy and sell assets at predetermined prices.
  • Chasing huge growth potential. This is high risk and requires a lot of research, however, if you can find an entry-level-priced asset that has the potential to make huge returns, this strategy could work in your favor.

Bottom Line

Bear markets will come and go, as will bull markets, so it’s important to stay level-headed and build trading strategies that you can stick to in order to ride out the waves of crypto trading. If this feels overwhelming, stick to a solid hodl strategy.

Based on previous bull markets and crypto winters, all price charts prove that Bitcoin and the greater crypto market always bounces back so hang in there and don’t lose hope. Remember, market cycles are cyclical, meaning they always move through these four phases: the accumulation phase, the markup phase (bull market), the distribution phase, and the markdown (bear market) phase.

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