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- How to Survive a Bear Market
How to Survive a Bear Market
“For those properly prepared, the bear market is not only a calamity but an opportunity” -Sir John Templeton, Investor, Fund Manager and Philanthropist
Newcomers to the cryptocurrency space and even some veterans 🗝️ might be unsure with what their next move should be as the market has become more volatile. Bitcoin (and its counterparts, the altcoins) have been caught in a cascading downward momentum, the worst it's seen in years. Analysts and investors alike are going through many indicators and metrics to see at which point the market may potentially turn back to being bullish once again!
As of writing, Bitcoin is currently down about 70% from its all-time high in 2021, falling to as low as $17,600 last Saturday putting it below the average investor cost base of $23,500. This means prices have dropped enough to test even the long-term holders who, up until now in the crypto winter of 2022, were mostly in profit with their investments.
Now, in order to learn how to fight off the bears (not literally of course!), we must learn to understand what a bear market 🐻 is.
Bear Market 101
A ‘bear market’ is simply a term used to identify a direction/sentiment of a market. To put it into more context, it is when falling prices of stocks or crypto markets decline 📉 over a considerable amount of time with losses of at least a 20% drop from recent highs. When a prime asset such as Bitcoin falls in price, the small and medium-cap altcoins also experience bearish price losses due to being correlated to BTC.
When in a bear market, you will find that supply is greater than the demand, the confidence of investors is low and prices start a downtrend pattern. Bear markets can be tricky for inexperienced or new traders. It can be relatively difficult to predict when the end of a bear market is happening 🔮 or to find the exact price bottom to ‘buy 🛒 the dip’.
So here’s a crucial question: What makes today’s crypto market a bear market?
The bears are in control!
The 🌐 global crypto market cap is currently down from its all-time high (ATH) of $3 trillion to currently sitting at just over $900 billion as of writing. The number one cryptocurrency, Bitcoin, is down by approximately 70% from its ATH made in November last year and Ethereum (the top altcoin) is down by 78% from its ATH of $4847.
So it seems that all cryptocurrency holders are indeed in a full-blown bear market! The whole crypto market had recently been experiencing double-figure percentage losses 😬 with Bitcoin dipping to as low as $17,600 briefly, on 18th June for the first time since November 2020! Taking into account the bearish market sentiment, many investors are understandably worried!
But it is not as ‘doom and gloom’ as it first seems and it doesn't mean you can't survive in a bear market, after all the crypto market never stops or sleeps! So what are some things you could consider doing in a bear market to survive this cycle’s crypto winter?
Why bear markets are not as bad as they first seem
Bear markets can seem scary and intimidating 👻 for novice investors, and even those that are experienced, as nobody really enjoys watching the value of their portfolios go down; but on the flip side of the coin 💰 (pardon the pun), bear markets can also provide good opportunities to put your money to work for the long haul while cryptos are trading at low prices!
Usually, newcomers to the space embark on their crypto journey based on hype via social media such as ‘crypto twitter’ or out of FOMO (fear of missing out), leading them to buy the tops and sell the bottoms; however, bear markets can provide a great opportunity to enter the market as most coins trade at a lowered price. Additionally, bear markets can provide good opportunities for traders to short their assets 🔻 as prices see large swings. Please note, since the crypto markets can be very volatile, shorting assets is something mainly experienced traders take up because while shorting the market can be profitable, it comes with its risks!
So how can you take advantage of a bear market?
Well first, the most important thing to do is always be prepared for any eventuality, whether in a bull or bear market. For example, never invest more than you can afford to lose. Also, try to keep your emotions out of it (bears can smell fear), that instinct may have your total balance in the red!
Now, as for some strategies? For starters, consider thinking long-term ⌛ with your investments! This will always help get you through a bear market. Remember, markets bounce back eventually. That being said though, many new investors often make the mistake of exiting too early from their positions by selling due to fear (also known as having ‘paper hands') 🛑 and seeing their invested amount reduced, which can be a bad way to go about bearish environments.
Unfortunately, there are no ways for certain to tell when a bear market is finishing, however, there are signs you can look out for 🕵🏼 like looking at the global economy and seeing if that is showing any bullishness or signs of recovery. You should also consider learning how to do crypto analysis, at least at a basic level to better understand the market’s movements.
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Some other strategies that investors and traders use in bear markets are first and foremost, taking advantage of the firesale 🔥, and buying crypto at discounted prices. One day in the future when Bitcoin is at a very different price point, whether you bought at $10k, $20k or $50k won't seem like such a big deal! A popular way of taking advantage of the discounted market is to add to your chosen asset by dollar cost averaging (DCA). This is a strategy where a buyer invests a total sum of money in small increments over time instead of all at once. The goal here is to take advantage of market downturns without risking too much capital at any given time. This will alleviate the stresses of trying to find that perfect price to buy in but will also leave you less exposed to the ⚠️ risk of market volatility.
🔐 Staking is also another great example of how to grow your portfolio with little effort and risk in a bear market. Instead of just holding your crypto coins, put them to work! Staking allows you to earn interest, similar to how a bank account works. Your deposited coins are used to verify transactions, and for doing so you will get rewarded! Why not check out our explanation video here on how staking works and see how you can earn up to 20% interest in rewards with NAGAX safely, with no fees!
Lastly, trying to always catch the bottom 🍑 can be considered a pointless exercise in a market as volatile as the crypto space. Sometimes a bear market ends as soon as the bottom has been reached. But try to catch the bottom or buy that final dip, you could end up investing at a higher price when the assets start to recover 🤦🏻♂️. That being said, in the end, it is undeniable that bear markets can be slow and unpredictable and are usually influenced by many external factors such as economic growth, investor psychology, and world news or events (as we have recently seen!). As there are an abundance of recommendations on how to invest in bear markets in every corner you look at, it is always crucial to DYOR (do your own research)!
- We are in confirmed bear market 🐻 territory
- Although bear markets are not great for the markets in the short-term, there are ways to benefit from them in the long-term
- Thinking long-term with your investments is key, but strategies like staking and DCA can help…if done carefully
- DON'T try to catch the bottom, take advantage of the dips
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Risk Warning: Cryptocurrencies are highly volatile and trading can result in the loss of your invested funds. Before investing you should be aware that cryptocurrencies may not be suitable for all investors. You should therefore carefully consider whether trading or holding digital assets is suitable for you in light of your financial condition and not invest money that you can not afford to lose.