What to Do During Crypto Bear Markets
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With the recent bear market, Bitcoin is down from its all-time value by about 50%. Coins like Luna have lost almost 100% of their value, and crypto investors are panicking seriously. Some are considering selling their cryptocurrencies, while others want to hold on for the long term. But just think that not too long ago, the crypto market was looking good. Bitcoin was at a record high, and even meme tokens (or shitcoins) were growing rapidly too. Things change rapidly on this volatile market!
Currently, many new investors struggle with deciding whether they should buy the dip or wait until the market shows signs of an upward trend before making a move. Either way, navigating a bear market can be tricky. The fear and uncertainty can drive investors to make many regrettable decisions. That is why in times like these, a smart investor should have strategies and a plan of action to come out victorious.
Four strategies an intelligent crypto investor should consider during a crypto bear market
One: Try to keep your emotions in check
It is harder than it sounds, but you have to manage your emotions properly if you hope to stand a chance of surviving a crypto bear market.
Many emotions will trouble you when navigating a crypto bear market, but the strongest of them is fear. Of course, fear can work in different ways. For example, you might feel the fear of missing out (FOMO) or losing all your assets.
FOMO is driven by greed. New investors see that the values of certain cryptocurrencies are down and rush to buy, hoping to sell at a much higher price later. Sometimes, buying the dip could work and make the investors some money, but other times, the prices might go much lower, and the investors could lose money.
The problem with buying because of the fear of missing out is that many investors don’t do due diligence and study if a cryptocurrency is worth buying at that point. Sometimes, the dip might be a signal that the cryptocurrency’s price is going much lower.
On the other hand, the fear of losing money could drive a crypto investor to “panic sell” their crypto assets. There is nothing wrong with selling your crypto during a bear market, but ensure you’re doing it because you believe it is no longer a good investment. Don’t sell just because its price is going down momentarily.
Two: Think Long-Term
Since the inception of cryptocurrencies, there have been many bear and bull markets, and many cryptocurrencies have outlived these trends. Statistically, Bitcoin always survives bear markets and trends upwards long-term.
When navigating a bear market, study your crypto assets and see how they have performed long term. You can also use a combination of technical, fundamental, and sentimental analysis to determine if a cryptocurrency will fall or rise in the short and long term.
If you’ve invested in solid assets like Bitcoin and Ethereum, you can be sure it’ll go back up after the bearish trend is over.
Thinking long term will help you overcome the fear of losing money that makes many investors sell their assets during a bear market. It will also help you consider assets worth buying during crypto dips so that you can benefit from the upward trend.
Three: Consider diversifying and only invest within your means
After using long-term thinking and analysis to determine which crypto assets are worth investing in, use only money you can afford to lose. Crypto bear markets can be emotionally draining, and you don’t want to be on edge, worrying about whether you made the right call.
No matter how sure you are about your analysis, always leave some room for doubt and invest funds you know you can do without.
Also, consider diversifying your assets. If you do your analysis right, you will have some promising cryptocurrencies. By diversifying your crypto portfolio, you will hedge against losses that are bound to happen to some of your chosen cryptocurrencies.
For example, suppose you diversify your investment and open multiple positions on four different cryptocurrencies. In that case, you won’t suffer much if one of them goes down in value because the gains in the other ones will cancel it out.
On the other hand, if you invest in one cryptocurrency and it goes down, you have nothing to hedge against the loss.
Four: If you must buy the dip, use Dollar Cost Averaging
During bear markets, crypto investors are often caught on the wrong side, i.e., losing money on the declining value of their crypto assets. However, at the same time, some investors have cash in fiat or stablecoins that they can invest in buying the dip.
Buying the dip means buying cryptocurrencies when their prices have plummeted during a bear market. Then, if the prices rise again later, the investors who bought the dip make a healthy profit by selling.
If you decide to “buy the dip,” the best thing to to do mitigate risks is to Dollar Cost Averaging (DCA). With DCA, you divide your investment into batches and invest them one at a time, at different points.
For example, if you have $500 to invest, you can divide it into five batches and invest those smaller amounts. When you invest the first $100, you wait to see if the value of the cryptocurrency drops before you invest the next batch, and so on.
DCA is helpful because nobody really knows how far a cryptocurrency will fall before rising. By investing in small amounts, you take full advantage of the dip. If the value of the cryptocurrency falls even lower, you still have more money to invest in the dip.
A bear market is never an easy time to be a crypto investor, but it is necessary and inevitable.
When downward trends happen, many people are tempted to panic and exit the market. However, before you do this, it helps to go through the strategies in this article and develop your own trading goals.
While others are getting swayed by the market and letting their emotions decide for them, these strategies will keep you firm during these challenging times so that you can come out on the other side victorious.
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To register on Lykke, first you have to get verified by going through the KYC procedure. After that, you can deposit funds into your wallet using the fiat gateway at zero banking fees. Once you’ve credited your account, you can start trading on Lykke with zero trading fees.
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