Crypto Bear Market: How to Survive
In these turbulent times in crypto, the term 'bear market' is echoing almost everywhere. If you are a crypto newbie, it might be one of those tricky terms for you. Here's an easy explainer that will reveal what it is and how you can navigate through it.
A crypto bear market is an intrinsic part of the cryptocurrency world. It denotes the market state where asset values are continually depreciating. Here, investor sentiments are pessimistic, and demand is lower than supply. More importantly, the minimum decline in the prices of digital assets has to be at least 20% for an overall bearish trend.
Bear vs bull market
To completely understand the cryptocurrency bear market, it’s crucial to see it in contrast with the bull one. A bull cycle is the exact opposite of a bear cycle. Where bullish trends indicate high demand and lower supply, bearish show low demand and higher supply.
Investors have confidence when the trends are bullish and movements are upwards. It triggers a favourable economic environment with a sustained increase in asset values.
Another significant difference between the two is economic activity. In a bullish cycle, since the economy is strong, there is more trading and liquidity. Contrarily, the bearish cycle has lower trading activity and liquidity. There is also increased selling pressure among the investors, further decreasing prices.
However, the bearish cycle allows investors to buy assets at lower prices. So, you can make better profits when the crypto trends enter a bullish cycle.
Signs of a bearish market
Here are a few of the signs that indicate market bears.
A prolonged period of declining prices of cryptocurrencies. There is at least a 20% dip in the values of the assets.
Increasing FUD (fear, uncertainty, and doubt) among investors, indicating negative sentiments and low confidence.
High selling pressure.
A lower trading volume.
The lower price of cryptocurrencies in the futures market as compared to the current price.
The 50-day moving average of an asset crosses its 200-day value, known as the death cross.
How to stay afloat in the crypto bear market?
Bearish trends can be troubling for novice traders as we start panic selling during this period. But, this mostly results in losses rather than gains. So, what should one do when the trends go bearish?
- Dollar-cost averaging (DCA)
In the bearish cycle, many people try to time the bottom. However, this exposes them to more risks as it is a gruelling task. When you go to buy the dip, it is possible that the asset’s price may dip further than expected. Hence, DCA can be the least riskier strategy in this scenario.
It allows you to invest small amounts in a coin at regular intervals. You can invest weekly, monthly, or at any set period. If you consistently follow this strategy, it will help you accumulate a high-conviction digital asset. So, when the bulls enter the market, you will be better positioned to make profits.
- Study the causes of the bearish trend
Secondly, studying the causes behind the bearish trend is essential. The traditional market also indirectly affects the behaviour of virtual currencies. For instance, you can start with the inflation rates.
Currently, in the United Kingdom, the inflation rate is 11.1%, against which the government’s target is 2%. It means there’s a tightening monetary policy, which is less favourable for economic activities. It is advisable to look for a drop in inflation rates.
Other causes include oil prices or other world events that may affect the economy, like the Russia-Ukraine war.
- Investing in crypto ETF
Investing in crypto exchange-traded funds (ETFs) is safer than investing in one currency. ETFs give you exposure to multiple cryptocurrencies and their blockchain technologies. It works in a way somewhat similar to stocks and allows diversification of assets.
- Keep an eye on industry giants
To develop a long-term investment strategy, it is advisable to analyse the moves of industry giants. The money flow from large financial institutions like BlackRock, Goldman Sachs, or others may indicate the market state. Their investments in certain areas can signal where to invest for long-term gains.
A sudden decline of double digits in the prices of digital assets can be scary for less experienced traders, if not everyone. However, if you know the signs of a crypto bear market and develop a long-term investment strategy, you can more likely survive the declining cycle. DCA, investing in ETFs, and closely monitoring the world events that affect the economy can help you.
Author: Hassan Alzaza
My Name is Hassan Al-Zaza, I am a detail-driven and experienced SEO Content Writer living in Germany with over ten years of experience developing and producing top-notch content. I have a Bachelor's degree in English Language and Literature and a Master's in Business Communication. I have been working for 12 years in marketing, Content Writing, and ad Copywriting across SMEs, corporate, and public sector organizations in the EU and the Middle East region. I helped build brands for a wide range of successful companies from IT and software consultancies to the finance industry, tourism, and retail.