Crypto: How to survive the bear market

Traders can take steps to avert uncontrollable losses in a bear market. Here are tips for an excellent trader to mitigate risks and profit in a bearish market.

Bearish market in crypto.

The cryptocurrency market has been bleeding red since the latter days of 2021; the start of 2022 was also celebrated amid cries of a market downturn.

The de facto king of all cryptocurrencies, Bitcoin has shredded almost half of its All-Time High(ATH), trading at 37,000 USD; a far cry from its ATH of more than 65,000 USD in February, April and November 2021. The first two ATHs were not unrelated to the IPO of Coinbase and Tesla announcing they have acquired a substantial worth of Bitcoin.

Yet, the once bullish market in 2021 has turned into a bearish bloodbath from late 2021 to early 2022. Nevertheless, some crypto investors still view the bearish trends as a regular Thursday.

Confidence cannot be the same for the crypto market, which has witnessed a loss of over 620 billion dollars in bitcoin's market value and over a trillion dollars from the entire crypto market.

If Bitcoin could lose such an amount, one can only help but wonder what would become of the altcoin market, which has lost more than 30% of its market capitalisation, with some altcoins posting losses in double-digits.

Many investors are set to be furious following the latest figures. They can choose to blame this severe loss on the hawkish stance of the U.S treasury, Potential crackdown by Russia, leveraged longs on the crypto market or they can find ways of trying to manage the impending bear market.

Losses have been recorded, and more are expected to come, but how can losses be managed, and what should one do in a bear market?

Just as there are ways of managing assets under an inflation, there are also ways of survivng the bear market. This article addresses the above questions and will proffer tips on what to do during a bear market. It will also give some pointers on what not to do during a bearish crypto market.

Image from Unsplash

Bear market in cryptocurrency

A bear market is characterised by a sharp fall in the prices of investments like crypto-assets and stocks over a prolonged period. A market is called bearish when the price fall rings at 20% and above.

The journey into the bear market often starts with an inevitable recession, where investors are on the lookout for figures surrounding unemployment, hiring numbers, inflation, etc. As Pessimism encourages the thoughts, investors lose confidence, and the market begins a cycle of asset sell-offs.

An eventual sharp fall in prices will follow suit; the bear market is a sentimental period because people will keep selling as the prices fall further. A simple dive into the theory of demand and supply reveals that if the number of people willing to sell is higher than those willing to buy, then the price of the asset goes down.

Bear markets should not be confused with a market correction when prices fall between 10% to 20%. Investors are often ready to hold their positions against a market correction, but few are willing to stand a 30-50% loss.

The bullish period often lasts longer than the bearish era, but the panic during the latter can be highly catastrophic if the proper measures are not implemented. There are actions that investors can take to survive the bear market and maybe even come out unscathed.

What to do in a bear market

The bear markets are historically shorter than the bullish market, but sometimes the loss results in the shedding of six months of gain within a short time.

The first step to managing losses during a bearish market is accepting that a bear market is a norm bound to happen anytime. The signals might be there, but no one knows when it will start or predict its end like the biblical rapture.

If the crypto market is bearish, there are a few steps that crypto traders can take to keep their heads in the sand and come out swinging. The bear market does not have to be the end of the crypto market; bears come and go, but the bull is sure to stay longer.

Here are some steps to manage your portfolio and profit from a bear market.

1. Do not get all emotional

Not being emotional is often the hardest thing to do in a bear market, but one must realise that getting all emotional because assets are dwindling in value helps no one.

One American Economist, Benjamin Graham, once described investors who cannot get hold of their emotions as ill-suited to earn a living from the market.

Emotions often present as greed or fear; both are the antithesis of profit-making in the crypto market. Without proper research, FOMO and greed might propel some individuals into buying dips or selling off their crypto assets.

Yes, the bear market has happened or looming close; this is the best time to keep tight-knit on the emotions; rather than drown in tears, go out with friends and try to have an excellent time. It is time to recuperate.

2. Diversify your portfolio: Look for high-quality Crypto assets

Get hold of emotions and replace pessimism with optimism.

The bear market must end, and although there is no guarantee that crypto assets will reach their ATH again, investors can take some time to research crypto assets with more potential and are set to rebound even higher.

Diversifying portfolios might reduce reward ratios, but it minimises the risks of investing all funds in one asset.

Proper research is required to decide on the best crypto assets to buy. A broader approach will be to review the previous ATH, performances and rebound histories of some crypto assets; Crypto traders can do a composite analysis using popular tools like TradingView, etc.

There is also the need to evaluate the roadmap of crypto assets like the upcoming mainnet launch, partnerships and other positive outlooks.

3. Find the best entry point into the market

Once there is a good grip on the emotions and decisions made on the best crypto assets to buy, the next step is a strategic market analysis. Investors must penetrate it even more if they intend to profit from the bear market.

Investors cannot afford to give up in a bear market; as shown earlier, the bearish period is shorter than the bullish market. So since the market is set to rebound, investors might as well buy more assets and wait for the bull to return.

Investors must determine the best entry point into the market. Often, Technical analysts use momentum oscillators like the Relative Strength Index (RSI) indicator to analyse the best time to buy and sell.

The RSI is not 100% error-proof, especially on a 4-hour, hourly or even a 30 minutes timeframe. To better analyse, traders should confirm the RSI against other indicators before opening a trade.

A simple overview of how to use the RSI indicator is by analysing the RSI chart to observe the RSI indicator moving against two areas the:

  • Overbought: The RSI Indicator signals an overbought condition when the RSI line enters the 70-100 area, which usually means the price may fall.
  • Oversold: The oversold RSI signal appears when the RSI line enters the 30-0 area. When the RSI is oversold, the price is likely to increase.

Technical analysis of the price of bitcoin against the U.S dollar using the RSI. The blue arrow shows the thin blue line from the image above, shows the RSI line. The red arrow is at 30; below 30 is the Bottom, the yellow arrow indicates the top (70-100).

4. Buy the dip: Dollar-cost averaging should be your friend

The suitable portfolios and best entry point into the market have been determined. The next step to surviving the bear market is to take action and divest the portfolios by using the Dollar-cost averaging (DCA).

This strategy echoes the famous phrase "Buy the dip" Baron Rothschild, an 18th-century member of the Rothschild banking family, reportedly said, "the time to buy is when there's blood in the streets".

Crypto investors can buy depreciating assets, but it is not advised to be done sporadically. Traders can avert somewhat unnecessary risks by using the Dollar-cost averaging method.

Dollar-cost averaging is a method of buying crypto by splitting fiat or stable coins into tranches instead of spending all appropriated funds in a single trade. For example, a trader with about 100 USD can split the funds into four tranches per week, month or day.

A combination of proper research and technical analysis can give a good trader an insight into when to buy.

Buy the Dip meme.

5. Focus on the long-term

In general, the crypto market and all markets are all about the long haul. Investors must remember that keeping a long-term perspective is the best way to survive a bear market.

The bear markets come and go, but the bullish market will last longer, so it is essential to set the goals right. Investors can choose to invest their retirement funds in stocks or crypto assets but save up fiat or stable coins to solve short-term goals.

It might also help to check the price prediction of crypto assets, for instance here are price predictions on Shiba Inu and Solana.

Not playing the long-term goal might wreck savings with investors selling off their depreciated assets to solve short-term goals or prevent further dips.

Conclusion

The bear market can be managed and even bent to earn profits, but it requires deep insight, technical, analytical skills and patience.

Some investors may not manage their assets properly in a bear market, recession or economic downturn. Nonetheless, there are other options like financial advisors or hedge fund managers.

There can only be two types of Investors; investors who see the bear market as an opportunity and investors who freak out during a bear market.

Successful investors cannot afford to be the latter.