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Cryptocurrency Bear Market: Strategies of a Smart Investor

The cryptocurrency market has gone through several bull and bear cycles in the decade since its inception. Savvy investors leverage both these cycles to optimize their investment portfolio, rather than letting their emotions and gut reactions guide their investment.  In this article, we review key strategies that savvy investors use during a cryptocurrency bear market cycle.


Investment strategies to thrive in cryptocurrency bear market

A bear market occurs when the prices of digital assets fall more than 20% from their recent highs. Typically, a bear market has more supply than demand, leading to the fall in prices. Some of the characteristics of a bear market include low liquidity, fall in trading volumes, and lack of investor confidence.

Smart investors know how to use bearish conditions to further optimize their cryptocurrency portfolios. Let’s look at the strategies that help traders  survive and thrive in the bear market.

  1. Buying the dip

    This is one of the strategies that investors leverage in bear market conditions. They buy digital assets at low prices only to sell them later when market conditions become better. Since it is a long-term investment strategy, traders are unaffected by short-term volatility in cryptocurrency prices.

  2. Going for blue chips

    When a recession spreads, investors look at their current positions and reduce exposure to the most volatile assets. Most of these coins usually come from the trending sectors of the market like NFTs and meme coins. Reviewing portfolios is good practice in bullish conditions as well. By regularly reviewing your portfolio, one can identify any weak spots and make adjustments to minimize losses.

    Smart investors know that their investments are safe with blue-chip digital assets like Bitcoin. For instance, Bitcoin has, in the past, dropped by nearly 80% and recovered. However, some altcoins that went down during the 2017 crash have yet to recover.

  3. Short-selling

    In a bear market, prices often dramatically plummet from their ATH. Shorting is one strategy that investors leverage to come out ahead. This is betting against a coin's price by predicting that it will go down further.

    While it is one of the strategies for making profits in a bear market, it is also quite risky and can easily lead to losses if the market doesn't move in the expected direction. So always remember the golden rule of investing: Only invest what you can afford to lose.

  4. Diversify

    One of the essential rules of investing is to never put all your eggs in one basket. This is especially important during a bear market, where some assets lose value while others hold steady or increase in value. To minimize losses, one should spread money across different assets. Investors are less likely to lose everything if one asset class takes a nosedive by diversifying investments across different assets.

  5. Zoom out

    Having a plan is essential for your investment portfolio. It can be tempting to make rash decisions when prices are falling. However, rash decisions  usually lead to more losses. So instead, have a clear plan for your approach to the market and stick to it no matter what.

    It is easy to get caught up in the day-to-day price fluctuations, so it’s important to remember long-term investment goals.

  6. Stablecoins

    Investors can swap their assets into stablecoins so that their funds are safe when the market recess goes further. With this strategy, investors earn passive income from stablecoins by lending them in DeFi protocols.

  7. Be patient.

    Bear markets can be frustrating for investors, but it's important to remember that they are often just temporary setbacks. Smart investors wait for the market to recover, so they will be better positioned to take advantage of the next bull market and make profits down the road.

Here’s what to avoid

  1. Panic selling

    This one is easier said than done. It’s important to remember that correction markets are a normal part of the investing cycle. They allow savvy investors to make profits, so panicking and selling off your investments will only lead to losses in the long run. It can be tempting to sell everything and get out of the market when prices fall. However, selling when prices are low leads to missing out on the rebound when prices rise again.

  2. FOMO or FUD

    These are some of the most significant factors driving crypto markets. FOMO (Fear of Missing Out) and FUD (Fear, Uncertainty, and Doubt) influence market movements based on fear and greed. Investors guided by FUD and FOMO typically get emotionally overwhelmed, ignore their trading strategies, and make poor judgments. This is more common in bear markets. The only way around FOMO and FUD is to  focus on long-term strategy and keep your emotions in check.

Bottom line

It is necessary to have a strategic plan to effectively navigate a bull or bear market. Developing a strong mindset and strategic thinking is crucial. Smart investors keep a cool head and always zoom out to thrive in any market condition.

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