How to Utilize the Crypto Bear Market

Currently, the bear market may be weighing heavily on many investors. Investing in this bear market can be challenging, but here we look at how you can navigate this and what to keep in mind.

By
Soumen Datta
on
June 1, 2022
Category:
Explainer

The Crypto Bear Market

Markets are often described one of two ways: a bull market or a bear market, regardless of whether they pertain to cryptocurrency, stocks, real estate, or anything else. A bull market is a market that is rising, while a bear market is one that is declining. Typically, bear markets are characterized by increased supply over demand, low confidence, and falling prices. Pessimistic investors who predict prices will continue to fall are called bears. 

This article will discuss why investing in a bear market can be profitable and how you can do the same. 

The Current Market Situation 

We are currently in a bear market, and recent events like the Luna fiasco have worsened things. Bitcoin and Ethereum have fallen to less than half of their most recent all-time highs. The valuation of the global crypto market fell by approximately 60% from its all-time high of $3 trillion to $1.354 trillion as of May 17, 2022. 

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Additionally, on May 8, the crypto space witnessed one of the more devastating attacks on $ LUNA and $UST as the entire Terra ecosystem crumbled. Due to the failure of its arbitrage system, $UST, the largest decentralized stablecoin by market capitalization, lost its peg. Likewise, over 99% of the value of $LUNA was lost due to an unforeseen attack.

Further, experts suggest that several other factors have contributed to the current crypto bear market, including the interest rate hike by the US government and rampant inflation, bans, and regulations in some countries. So now, in this volatile environment, with some arguing that cryptocurrency may be heading towards extinction, will it be wise to invest more? Let's talk about it further.

Why Invest Crypto Bear Markets?

A bear market can be challenging to trade, particularly for inexperienced traders. Moreover, there is a notoriously difficult time predicting when a bear market will end and when the bottom price has been reached, as recovery tends to be a slow and unpredictable process based on people's perceptions, economic growth, and world news.

However, they can also present opportunities. Buying during a bear market can be profitable if your investment strategy is longer-term. Investors with shorter-term strategies can also watch for temporary price spikes or corrections. 

Most new investors enter the stock market on social hype, but bear markets are good times to get into the market since most assets trade at a discount. In addition, bear markets provide opportunities for shorting assets as prices experience large drops. 

But shorting assets is something only experienced traders should do, as the cryptocurrency markets are highly volatile. Whether you're a new investor or an experienced one, a bear market provides opportunities to all to make some profits.

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How to Profit in the Crypto Bear Market?

When the market is in a general downturn, there are still ways to emerge profitable. However, it is up to the individual to manage the balance between risk and reward for each of the methods discussed below:

For Newcomers:

Staking: The act of staking involves locking in your cryptocurrencies. You stake your cryptocurrency on a blockchain network of your choice, also called a Proof-of-Stake (PoS) consensus method. Essentially, by staking, you tell the network you are willing to keep your device connected and validate transactions.

You earn more overall if you stake more as you receive more priority for validating transactions. You earn different amounts depending on the network, and payouts vary as well. It all depends on what the community decides. A crypto bear market is a great opportunity to profit using this method.

Investing in NFTs: NFTs are unique, having their digital signatures stored on a blockchain. Although the value of cryptocurrencies has declined, NFTs have relatively held up. The Solana NFT marketplace Magic Eden saw more than a 45% rise in volume over the last 30 days. But like most tokens, NFTs are now available at a discount. 

You can buy NFTs at a low price and sell them at a higher price when the time is right. In addition, you can also stake your NFTs, which is similar to staking your tokens on a Proof-of-Stake blockchain.  Alternatively, you can also invest in fractional NFTs, which are more affordable. 

Yield farming: In yield farming, cryptocurrencies are staked or locked into a platform to earn interest on them, similar to holding money in a savings account. How much interest you receive depends on how much you stake and how popular the token is at the time. The tokens you have are being lent out to other users at various interest rates.

You are then rewarded for that interest via the platform's token. As more people use the platform for lending and borrowing during the bull market, its asset value will increase, bringing more profits to all contributors.

Stablecoins: Stablecoins are cryptocurrencies pegged to another asset with a stable value. In most cases, stablecoins are linked to the US dollar, one of the safest assets in the world. The idea behind stablecoins was to protect against the volatile nature of the crypto market, making them an ideal investment while you wait out the current dip. 

Stablecoin holders earn daily interest on their holdings by opening accounts with cryptocurrency exchanges and earning daily interest. You can also earn by lending your stablecoins to an exchange. Additionally, you can stake your stablecoins to earn handsome returns. Check out this article by Samir Mourani from BSC News to learn how to leverage your BUSD stablecoin to earn passive income.

Consider and Analyze Smaller Projects: The number of new crypto projects is dwindling, but there are certainly some gems to be found. You can likely make money by investing in suitable projects if you research the newest tokens. Even if we were in a bear market and you were able to invest early enough, even a slight increase could generate a decent return.

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For Experienced Traders:

Swing Trading: Swing trading exploits short-term price fluctuations in a coin's chart instead of looking at prominent macro trends. When a price moves upward or downward in a confirmed channel, there will always be small peaks and valleys as it moves in that general direction. Experienced traders can profit from micro trends during a bear market by buying the lows and selling the highs. You should only perform this if you have a high level of risk tolerance and significant technical analysis experience.

Margin trading: With margin trading, you borrow money from a fellow trader and use it to trade a particular crypto asset. Therefore, any profits or losses are essentially multiplied by the amount borrowed. The process is called leverage, and it can be quite a rewarding way to make some extra money. In addition, it's risky and can also result in you losing more. Trading this way is only recommended for experienced traders.

Shorting: Shorting is the opposite of buying it and hoping it will rise in value. A short sale occurs when you borrow coins from the exchange and sell them at the current market value. As soon as you close your short position, you must repurchase the same number of coins at the current price to give the exchange the same amount back. 

The ideal situation in a short sale is when you start at a high price and close the sale at a low price, thus selling high and buying low. As a risk management strategy, this technique is typically used to hedge portfolios and reduce risk, but it can also be helpful when the market endures an extended downturn. 

Most experts, however, advise against shorting bitcoin and other cryptocurrencies due to the potential for unlimited losses and liquidation of your investment. 

Things to Keep in Mind While Investing

Although all of the methods mentioned above are valid options for profiting during a bear market, here is a checklist to consider regardless of your method of participation.

Stay Away From FOMO: Whether trading in the financial industry, FOMO plays a significant role in decisions. A little bit of profit from an altcoin that everyone is talking about can be a lot to take on. The problem is that, by the time you hear about a project, it's already too late. The best way to generate profitable investments is not to depend on someone else's word but to do your own research. So, in the long run, it's worth it to resist, even if it's difficult.

Invest Only What you can Afford: You shouldn't invest your life savings in cryptocurrencies since they are very volatile. It's exciting to be able to double all your money, no doubt, but it's not something worth sacrificing your crucial funds. Invest only with money you can afford to lose, regardless of where you do so. Follow other basics, such as always putting stop-loss orders in place while trading.

Do Not  Freak Out: Investors must always keep their emotions separate from their investment decisions. Investment decisions should always be taken logically and rationally. Never let fear or anxiety cloud your judgment because of a specific situation. 

HODLing can also get you through the phase if you've done your research and believe in the asset's long-term prospects. Prior to making any decision, you should have a clear understanding of the fundamentals of a given asset and take a decision accordingly. 

Diversify: It is wise to spread an investor's portfolio across various crypto assets. An investor's risk appetite will determine how the portfolio is diversified among multiple crypto assets. With the right asset allocation strategy, investors can easily avoid potential negative consequences to their assets. 

Learn how to analyze: You should check out different charts from reputable sources on the Internet. Follow the YouTube and Twitter accounts of experts and reputable content creators to gain knowledge of technical and fundamental analysis. Join communities on Discord and Telegram to hear from others. Listening to advice is one thing, but falling into FOMO is another. 

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The Bigger Picture:

Cryptocurrency is still a very new market. The current crisis is filled with risks and shaky technologies, many failing spectacularly. But on the other hand, today, the market is in a better place than it was during the last bear market, the Crypto Winter of 2018.

According to macro investor Raoul Pal, the current crypto bear market will only end once the Fed ends its rate hikes and eases its hawkish monetary policy. But, as Pal predicts, it could happen in the coming few months. 

It is inevitable that you will occasionally lose money no matter what kind of investor or trader you are. Regardless of how experienced you are, achieving a 100% strike rate is nearly impossible. However, as long as you follow the strategies discussed above, your chances of falling victim to crypto bears will be drastically reduced. 

The information provided on this website does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the website's content as such. Web3Wire does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.

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The information provided on this website does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the website's content as such. Web3Wire does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.

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Soumen Datta

Soumen is an experienced writer with a background in Laser Physics. He has a passion for learning and is mainly interested in Defi, P2E gaming, and NFTs. His largest crypto holdings are BTC, ETH, SOL and DOT token.

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