TL;DR
- Bear Market is characterized by a period of low prices of an asset and slow growth.
- Experienced traders can deploy investing strategies to increase profit potential during such challenging times.
- Some of the most effective strategies in a bear market include crypto staking, buying the dip, short selling, investing in NFTs, and yield farming.
- Bear markets won't last forever and usually are cyclic in nature.
A bear market is usually characterized by a period of low to no growth in an economy. In the crypto space, the bear market usually signals Crypto Winter or a period where cryptocurrencies are making lower lows and losing value.
As a trader or investor, the bear market could hold some opportunities for us to still make some profit and accumulate more crypto. And in this article, we will discuss some of these strategies!
What is a Bear Market?
The bear market is the antithesis of the bull market. Many dread the bear market because it is a period when prices of cryptocurrencies plummet and the red engulfs your entire portfolio. A bear market is defined by the downward movement of prices which typically occurs when investors' and traders' sentiments are low, owing to a dismal economic environment.
Bear markets can extend for months or even years, even so, skilled day traders in the cryptocurrency market can deploy bear market tactics to make profits despite the challenging market conditions.
Coins Fun Fact: An average bear market last about 9 months.
What is a Bull Market?
Conversely, a bull market, is defined by uptrends because of the optimistic perspective that investors and traders have toward their assets. It may also occur when the economy is doing well, which encourages increased spending or investment.
A strong bullish sentiment, when combined with a healthy economy, can keep markets moving in an upward direction for a considerable number of months or even years.
Coins Fun Fact: An average Bull Market last roughly 991 days or 2.7 years.
Bull Market vs. Bear Market
During a bull market, many crypto traders and investors are “winning” because cryptocurrency prices are breaking all-time highs and almost everyone experiences a green portfolio. Rising prices provide plenty of opportunities for traders to turn a profit.
Bear markets on the other hand have the potential to make cryptocurrency traders even wealthier. Using the appropriate tactics to deal with a bear market can help preserve cash flow while also opening up a lot of doors for you. In fact, one of the best ways to quickly profit from crypto is to take advantage of a market decline.
Investing Strategies for Bear Market
The greatest distribution of wealth takes place during periods of falling market prices. Your place on the spectrum, whether you are losing or winning, will be determined only by your perspective and the techniques you employ.
Here are a number of things you can do to save your funds while earning money during a crypto winter:
Short Selling
“Shorting” or Short selling is a type of trading strategy that allows investors to profit from a decline in the value of an underlying asset. It is dubbed "short selling" because even though you’re short of funds, you are still in a position to sell.
When shorting the marketing, the trader borrows an asset at a high price and sells it with the hopes to buy it back again at a lower price.
For example, John borrows 1 BTC, with a current price of US$10,000. He then sells it, giving him US$10,000 in cash. When the price of BTC drops to $8,000, he can then purchase 1 BTC, which gives him a surplus of US$2,000.
This is an oversimplification of how Short Selling works, but it requires additional technical analysis knowledge, fundamental analysis as well as experience doing such trades. There are also some caveats like contract expiry where the trader has to repurchase BTC by a certain date otherwise he will face losses.
Buying the Dip
“Buy the DIP!” This is probably the most common phrase you will see during a bear market. Buying the dip allows traders and investors to accumulate cryptocurrencies at lower prices during a downward trend in the market. Given this line of reasoning, it's not hard to see why so many seasoned investors seize the opportunity of buying the dips.
However, it can be quite challenging to figure out when the “ dips” are and if this is a real “dip”. During a bear market when portfolios are turning red, fear, uncertainty, and doubt grow as well which makes it hard to predict when the dip or the lowest point is.
There are instances when what appears to be a "dip" in the market is actually just increased market volatility, therefore, here are two signals to consider when looking for the dip:
Dips could either be attributed to a momentary pullback in a bullish market or a crash that will lead to a long-term market decline. But looking at a wider perspective like using the yearly charts, you are able to see if the macro trend, is an upward trend or a downward moving trend.
If the macro trend is upwards, this could be a slight pullback, however, if the macro trend is downwards, this could mean that the market might be going downwards to a point of a crash.
Invest in Non-Fungible Tokens (NFT)
When crypto winter comes, almost all facets of the crypto space are affected and that includes NFTs. However, during a crypto winter, many NFT projects continue partnering with major global brands to secure their longevity for their project.
Many well-known multinational companies, like Coca-Cola, Louis Vuitton, Nike, and Samsung, are now active participants in the NFT arena. Despite the general decline in the crypto market, there was no discernible slowdown in NFT transactions. In addition, unique buyers and sellers of NFTs maintained an acceptable level, as the NFT markets showed a robust rebound back in April of this year. NFT trading volumes hovered around $687 million per week on average up until the beginning of May 2022, marking a small increase from the fourth quarter of 2021, when they averaged $620 million per week.
With an increasing number of institutions, huge enterprises, and financial institutions entering the space, there is no doubt that NFT will see brighter futures ahead despite the recent crypto winter. But it’s still important to do your research before investing in a particular project.
Staking Your Crypto
Staking process of keeping your coins in a validator by doing so, you support the blockchain by verifying transactions and creating new blocks, in return, you get rewarded in crypto.
Staking rewards are determined by a percentage return in APY or APR. More often than not, staking provides a significantly higher APY than the rates offered by traditional financial institutions. Some of the cryptocurrencies with the highest stake rewards include Looks (LOOKS), Polkadot (DOT), and Cardano (ADA). For long-term staking, one can look at blockchains like Ethereum (ETH) which just went through a merge, Solana (SOL), and Uniswap (UNI) because of their strong fundamentals.
Depending on the crypto you are staking, some will require you to join a staking pool if you do not have the minimum crypto needed as a validator, however, there are some that you can stake natively with your hardware or software wallet. Your staked assets are never lost and you can withdraw them at any moment, albeit the processing time may vary depending on the blockchain.
Using DeFi Protocols
DeFi has opened up a whole new world of investing for those who have the knowledge and know-how. Users of DeFi can participate in various services that DeFi platform provides which include Yield-Farming, Liquidity Pools, and even Crypto Lending.
Yield farming
In yield farming, users can deposit USDC and in return for depositing USDC, they receive another token as a reward. Depending on the DeFi protocol used, the rewards will vary as well.
For example on Tokemak, if you deposit USDC to the DEX, you will receive 6.69% APY based on your USDC but will be distributed Tokemak tokens instead of USDC. Yield farming provides a potentially higher APY if the reward token increases in price during the market. By doing so, one is able to grow their crypto stash with very little risk involved.
Providing Liquidity to DEXs
As a liquidity provider, you provide liquidity to a Decentralized Exchange (DEX). DEX runs on smart contracts which depend on users depositing funds for liquidity. By providing liquidity, providers receive a small interest on their crypto when transactions are made. At the same time, they do receive a receipt token in return for them to claim back their tokens with interest.
Taking Advantage of the Bear Market
During a crypto winter, many traders and investors tend to become emotional, coupled with a red portfolio can easily push a person over the edge and cause them to make poor decisions on trading or investing.
Fear, uncertainty, and doubt are the main culprits of people losing money in the market, hence, it’s best to maintain your composure and constantly lookout for opportunities that may arise during difficult circumstances
In the meantime, you can explore other opportunities on how you can earn extra income from crypto.
As the saying goes:
Be greedy when others are fearful and fearful when others are greedy
Most markets are cyclic, which means that bear markets won't persist forever, and by sticking to your trading or investment strategy and taking advantage of the bear market, you will be able to make a significant profit by selling the cryptocurrencies that you previously bought at a lower price.
Keep your focus on facts and reason. Always remember to do your own research.
Disclaimer: The information and publications in this article are not intended to be and do not constitute financial advice, investment advice, trading advice, or any other advice or recommendation offered or endorsed by Coins.
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