Four Steps To Take in a Crypto Bear Market
When there’s more than a 20% decline in the stock market it’s usually considered a bear market. However, that conventional definition does not apply to the cryptocurrency market, which is more volatile than stocks and can rise or fall by 20% in a matter of days. However, a prolonged and sustained price drop in the cryptocurrency market is typically the start of a bear market. Long and extreme price drops are the most challenging test for any investor, significantly when cryptocurrency prices drop by up to 50% in a matter of months. It is true that investing does not guarantee a profit, and everyone must prepare for the possibility of a bear market at the outset. Therefore, BigONE believes that every investor should as a minimum take the following four steps to help them cope when the bear market hits.
Don’t panic sell
When faced with a significant price drop, it’s tempting to cut your losses, but this is not the best course of action as you will not benefit when prices begin to rise again if you do. Furthermore, selling after a significant selloff violates the age-old investing maxim of “buy low, sell high.” However, this is easier said than done because it is difficult to time to be in the market, but one thing is sure: selling at a low price will cost you a lot of money.
BigONE advises not to panic and reconsider why you invested in cryptocurrencies in the first place. For example, perhaps you believe that blockchain technology has the potential to change our future, or maybe you believe that Web 3 will be the next generation of the Internet. Instead, find out why the price has dropped and consider whether your original investment thesis is still valid. If the answer is yes, then now is not the best time to sell but instead to hold. “Don’t think all-or-nothing, think in percentages. What I see most commonly is people thinking they either have to sell everything or hold it all. It couldn’t be further from the truth. Instead, use your evaluation to gauge what % adjustment would regulate your emotions. For example, last night I recognized I did not have enough diversification into “safer” assets. I took out around 50% of many projects I still like and believe in but could see going lower,” recommends CEO of
Axolittles NFT, Nate McCord.
Have a long-term vision
When faced with a significant price drop, it’s tempting to simply cut your losses, but this is not the best course of action. However, you will not benefit when prices begin to rise again if you do. Furthermore, selling after a significant selloff violates the age-old investing maxim of “buy low, sell high.” However, this is easier said than done because it is difficult to time the market, but one thing is sure: selling at a low price will cost you a lot of money.
Speaking at BigONE’s recent expert panel on crypto investing blockchain consultant James Rennie underlined the point that when you’re looking at a portfolio you should make decisions based on what you can handle ahead of time. “It’s common sense to say, the price of asset can go up and the price of the asset can go down. And, you know, different protocols can have different issues that happened with them. So, being aware of the protocols that you’re dealing with, what could go wrong, what could go right? How can that affect the short-term view of investors? And what you’re going to do about it when those things happen?” Knowing that puts you way, way ahead of the average person, confirmed Rennie.
Use the time to do your own research
Rather than focusing on how far the market has fallen, try to make the most of this time by conducting research and learning. Spend your time learning something new, whether it’s cryptocurrencies or something else useful; the time won’t be wasted. For example, a bear market period would be an excellent place to start if you better understand a specific crypto space. You can also try out simulated investing in honing your investing skills so that you can manage risk differently when the market rises in the future.
Rennie agreed that he is always looking for the learning opportunities when the markets are calmer, when there’s less noise, and the quality of the online discussions is substantially better. “We spend less time talking about price, and a lot more time talking about technology, what we can build what we can do, what’s the new thing to learn in the space. And I think that’s a huge advantage. So, whenever you get that opportunity, I’d say take it.”
Data show that some people have learned to expect annualized returns of 5% or higher on their crypto assets in the face of new price declines. So, another tactic that takes some of the emotion out of investing at this time is by staking some cryptocurrencies during a bear market, you can help to increase network security while also generating consistent returns. It’s the simplest means to increase the value of your portfolio long-term and it removes the constant pressure of obsessing over the daily movement in the value of your crypto portfolio.
A bear market is an excellent time to buy the dip
“Buy the dip” is a phrase that appears whenever prices fall, and it may be a good move based on the previously mentioned logic of “buy low and sell high”, but it is not suitable for everyone. First, the price may fall further, which is why some investors buy the dip in stages; they may spend $100 today, and if the price falls further, they may spend another $100 the following week. It’s a way of evening out the costs and removing the effects of long-term price declines.
The greatest risk comes from people’s greed; many people are excited about the recent drop in cryptocurrency prices and believe it’s an excellent time to buy cheaply; as a result, they may spend all their money, but when the price drops further, they may find themselves with more money than they can afford to lose, or with no money when they desperately need it. Some people may also purchase cryptocurrencies without conducting any research, which may also cost them money. “I would say the key thing in any project, and in any sort of investment is do your own research. Because there’s so much information out there. And even for players and thought leaders in the crypto and blockchain industry, there’s so much talk like on LinkedIn, and all these platforms. Look for people who are well educated, very knowledgeable, and who will point you in the right direction, instead of just panicking and moving according to what the media tells you,” suggested barrister Brian Sanya Mondoh.
BigONE’s advice is to avoid short term changes to your investment strategy in buying cryptocurrencies simply because they are cheap. The moves, mentioned above, will help you benefit from a bear market, which will not provide us with high returns but will remind us to manage the risks of investing. Invest only what you can afford to lose, and you’ll never be forced to sell your cryptocurrencies at a loss. Another advantage of a bear market is that it ensures that cryptocurrencies are only a small portion of your overall investment. Finally, having a diversified portfolio means that it will not be too catastrophic if one of your assets underperforms.