By Medha B Dey Roy, Head of Branding, KuCoin India
July 13 2022: The cryptocurrency bear market cycle is the inverse of a bull market. It is characterized by significant price drops in cryptocurrencies that can last anywhere from a few days to several months and then a prolonged period of bearish market sentiment afterward. A bear market can have a variety of effects on your investments. For instance, you may be forced to sell some of your holdings in order to meet basic needs or obligations. You may also need to change your investment strategy and the amount of risk you are willing to take on with your investments.
Since December 2021, the prices of many popular cryptocurrencies like Bitcoin and Ethereum have been decreasing, where BTC lost over 60%, and ETH lost over 70%.
It's hard to keep your cool when crypto-assets are losing double digits. But don't bury your head in the sand; instead, take these simple steps to capitalize on this bear market opportunity.
Here are the top 5 moves every crypto investor should make when everything seems like it's in the red.
1. Keep Calm, Don't Sell in Panic
When the market is in a slump, investors are frequently faced with the decision of whether to sell their digital assets. The best course of action is to keep calm and avoid panic selling. This is due to the fact that cryptocurrencies have historically recovered from downturns, and investors would have made more money if they had held on to their coins rather than selling them during a downturn. When the market is down, these steps will assist you in keeping your losses to a minimum and gains to a maximum.
Step 1: Set a Price Target as a Goal
Being an investor, buy cryptocurrency with a specific plan in mind. You should set price targets so you know when to sell. Frequently, cryptocurrency traders will look at the market and decide that it is time to sell based on how far the digital currency has fallen. However, this is not always the case because coins have recovered and fallen in the past
Step 2: Figure out When You're Going to Sell
Determine when you will sell based on the amount of time you have set for your price target. Digital currencies frequently lose value faster than expected, making it difficult to decide whether or not to sell. The investor may have to wait for a period of time for the coin to rise again.
Step 3: Determine How Much to Sell
Once you have decided that it is time to sell, determine how many of the cryptocurrencies you will sell. This is not always an easy decision and every investor should consult their trading plan to determine exactly what they will do with the coins if it does go down in value.
Step 4: Sell the Cryptocurrency
Once you have determined how much of your crypto portfolio to sell and when, you can sell it. So, once the price of a cryptocurrency reaches your stake profit or stop loss level, you should sell a portion of your crypto holding without being influenced by behavioral biases.
Hence, we can conclude that having a trading plan is prudent, as it allows you to keep your cool and avoid panic selling.
2. Focus on the Long-term Picture
If you are a long-term Hodler, this might not be a good time to liquidate all of your tokens. Actually, the bearish market usually presents good buying opportunities. Warren Buffet-the world's most famous billionaire used to buy cheap stocks with strong earnings and long-term growth potential. So, don't be alarmed, and keep an eye on the long term.
For months, many analysts have been saying that the crypto bear market is just getting started and will be over soon. Technically, Bitcoin is gaining solid support near the $17,500 level, and June’s closing above this could motivate crypto traders to go long. While there are analysts who expect a more significant downturn in BTC/USDT prices, a break below the $17,500 support zone could expose the Bitcoin price to $12,000. If you are hodling cryptocurrencies for short-term gains, short-selling Bitcoin could also be an excellent option to hedge against downside risks.
3. Make Use of Technical Indicators to Determine the Best Entry Price
When a bear market has been in place for a while, it can be difficult to find the right entry point, especially in such a volatile market. Using technical analysis to determine the best time to invest in a cryptocurrency is the most effective method.
There are many different types of indicators that can be used, some of which are more effective than others.
- Relative Strength Index (RSI)
- Overbought RSI Indicator - Sell Signal
- Oversold RSI Indicator - Buy Signal
- Fibonacci Retracement
4. Buy Cryptocurrency on the Dip
For the past few months, the crypto markets have been in a bearish mode. Most cryptocurrency prices have been falling, and many people are selling their coins out of fear that they will never recover.
However, when the market is in a slump, it is the best time to buy a cryptocurrency for the long term.
Many investors are employing this strategy at the moment because they believe that prices will recover at some point in the future. Even if you are not an investor, you may want to purchase a cryptocurrency now if you believe that prices will rise in the future. There's a school of thought that says if investors believe prices will recover, they're probably correct. Others may argue that people shouldn't invest based on this belief.
So, consider buying the dip in the crypto bear market but don't try to buy just because prices are low if you don't have the cash to spare, already have high exposure to crypto in your portfolio, or don't have time to research which cryptos to buy. Always take charge of risk management in your trading and investing journey.
5. Diversify your cryptocurrency portfolio.
In the preceding example, I only looked at buying Bitcoin, but the reality is that the more diverse your portfolio, the lower your risk during bear markets. Various cryptocurrencies will experience both larger and smaller drops. For instance, BTC and ETH have dropped by 70 and 80% respectively from December 2021 to June 2022 while LEO has risen modestly by 84% from $3.2 to $5.9.
In a nutshell, do not put all of your eggs in one crypto basket. There are over 18,000 cryptocurrencies to choose from; not all will be winners, but not all will be losers either.
Use the following performance indicators:
- Previous all-time high: This is not a guarantee that it will be repeated, but it can give you an idea of the potential.
- Past performance: Past performance does not guarantee future performance, but it can provide a rough idea of potential in a bull market.
- Roadmaps: After a major update, such as the launch of a mainnet, crypto-assets frequently see significant price increases.
Bear markets serve as a good reminder to risk management, limiting the amount of risk we take. That means investing only with money you can afford to lose, so you're never forced to sell at a loss. It also helps to ensure that crypto-only accounts for a small portion of your investments. Having a diversified portfolio means that if one type of asset performs badly, it won't spell financial disaster.
KuCoin is one of the world’s leading crypto exchanges.
HODLers are crypto investors who buy and hold their positions regardless of price. ( as in Hold On for Dear Life)