Bear markets are an integral part of the market cycle and it’s hard to anticipate them due to individual sentiments, know how long they will last or their impact on the market. However, you can survive them by managing your risks effectively.
In the crypto world, the bear market is the opposite of the bull market – a time when prices of all crypto assets are increasing and confidence is high.
Cryptocurrencies are very volatile, prices of assets can fall by up to 90% under 24hrs.
Prolonged price drops are some of the most difficult times any investor can face. Especially when cryptocurrency prices lose as much as 90% in a short while – as they have in the past few years. During such moments, crypto investors suffer huge losses, and the bear market is something we all have to deal with.
Analysts have said, “there are possibilities that Bitcoin (the number 1 Cryptocurrency) might be experiencing a break above $50k in a couple of days.” But, we don’t know this for sure.
In order to manage risks during times like these, here are five things every investor can implement:
DON’T PANIC SELL
It’s extremely tempting to try to cut your losses when faced with huge price drops. If you do by selling off your investments, you might not get the chance to buy back lower. Selling at a loss will lock in your losses.
Take a deep breath and remind yourself of why you invested in the asset initially. If the reason is still valid, there is no point selling.
Try using this time to do more research and learn more about the market. Time spent learning — either about cryptocurrency or generally, is never wasted. If there’s a sector of crypto you want to understand better, that’s a good place to start.
Learn more about various passive income opportunities. In the face of falling prices, it is reassuring to know your crypto assets are earning annual returns of 5% or more. They will contribute to the overall network security and pay steady returns.
CONSIDER BUYING THE DIP
“Buy the dip,” is rampant on social media every time prices drop. But, it isn’t the right option for everybody because prices may fall even further.
If you don’t have the cash to spare, or don’t have time to research which cryptos to buy, don’t try and buy just because prices are low. There will be other lows — and maybe next time you’ll be in a better position to take advantage of them.
FOCUS ON THE LONG TERM
Cryptocurrency is volatile and we’ve seen drops like this before — and we’ll likely see them again. But if you invest with a 2-5 years horizon, it’s much easier to hodl even when prices are plummeting.
Staking can be a good way for crypto investors to put their hodlings to work, earning them interest and rewards.
Instead of leaving the crypto in your wallet doing nothing, get involved in the DeFi space and stake your crypto to earn passive income. Keep in mind that DeFi isn’t regulated and there are a lot of scams, do extensive research before interacting with any protocol.