How to Survive the Bear Market: Practical Tips for Crypto Investors
The recent bear market has been brutal for cryptocurrency investors and the financial markets in general. Fortunately, there are still ways to make money and protect your portfolio. Here are some tips on how to survive the bear market.
Introduction: What is a Bear Market?
A bear market is a prolonged trend experiencing a price decline in asset prices of more than 20–30%. It could last from months to years, depending on the macroeconomic factors that influence the cryptocurrency market. In contrast, when investors refer to a market that is rising, they use the term “bull market” or “bullish market”.
In a bear market, falling prices often fuel further pessimism that affects the investor’s sentiment, which can further sustain the decline in asset values.
Price may rebound to the upside, albeit short-lived, when bears (net sellers) have finally covered their shorts (taking profits) or the price reaches a new level where buyers step in.
The current bear market from November 2021 onwards has seen the total marketcap deflate from the highs of $2.7T down to $750B, just a few billion compared to the highest marketcap of the previous bull market last 2017.
Tips to Weather the Bear Market
Set up an Emergency Fund
Whether you’re investing for the long term or flipping cryptocurrencies in your pastime, it is prudent to set aside first an emergency fund.
The emergency fund is a savings account that acts as your insurance if you need to liquidate funds during unforeseen events like accidents, sickness, or loss of income. Typically, this fund should last for a year, but ideally, it should last long until the economy stabilizes.
Accounting for your monthly expenses, managing your debt, and setting up your emergency fund should be your priority in managing your finances before taking the risk of investing in the bear market.
Diversify and Reduce your Risk
Once the market begins to decline, the next step is to rebalance your portfolio and reduce exposure to more volatile assets.
These volatile assets have come out of the trending sectors of the cryptocurrency market, such as DeFi, memecoins, NFTs, or newly launched projects.
Fiat-backed stablecoins offer a low-risk strategy that can stabilize your portfolio and act as your buying power when the market conditions are ripe.
Dollar Cost Averaging
Dollar-Cost Averaging, or DCA, is a simple and effective technique for investing in the crypto market. DCA means investing tranches of money regularly over a long period, considering short-term volatility in prices.
Although the DCA strategy is an excellent way to increase exposure to established projects over time, it is often best to wait until the market has settled down and a period of consolidation has begun.
Dollar-cost averaging should focus on projects with active development, engaged communities, and a roadmap that lays out how the project will continue to grow and be viable in the future.
One way to increase your security and profits during a long-term holding in the cryptocurrency ecosystem is through staking.
While staking may not be a popular strategy to adopt in a bear market, the initial investment cost to reach the staking threshold for certain cryptocurrencies is much lower than in a bull market.
By depositing or “locking” your coins on a smart contract for a minimum amount of time, you will continue to generate a passive income that is measured with the Annual Percentage Yield (APY). In percentage terms (%), APY is the rate of return that takes into account the compounding interest.
Be mindful in staking as you may encounter the risk of Impermanent Loss. IL happens when the price you paid for staking your coins (your investment) is higher than the current prices of the coins, generating a net loss even if you’re getting paid back in interest.
Invest in your knowledge
One of the most productive ways an investor can do during a bear market is to invest in themselves by learning something new, whether it’s a new skill, a side business, or a passion project.
It’s not always about investing and trading cryptocurrencies. Good at community building? You can gather like-minded people and build your own community through Twitter, Telegram, and Discord.
Do you have skills in digital marketing? You can definitely lend a hand at a hundred or so projects that need exposure.
Are you technical savvy? You can also learn about coding smart contracts, websites, or other languages that run on web3.
Not only will this help investors avoid the urge to sell and lose future profits, but it can also lead to new avenues for building wealth.
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Disclaimer: This article is for educational purposes only and must not be treated as financial or legal advice.
Please conduct due diligence and manage your risks accordingly.