Before we delve into the cryptocurrency investment strategies you should follow during a bear market, let us first show you the difference between bear and bull markets.
what are bearish and bullish market trends?
The concept of 'Bears' and 'Bulls' has been around for a long time. These are basically the two types of investors that exist in any market. The term originated in the stock and commodity markets – and has also carried over to the cryptocurrency markets.
investors on the rise are basically those people who believe that the value of a certain stock, commodity, or in this case, cryptocurrency, will increase over time – and therefore, they invest in it in the hope of greater returns on their investments in the future.
You bearish investors are the people who believe currency prices will not be sustained over the long term and tend to sell their currency to avoid losses.
The basic difference between the two is that bulls buy and bears sell. When the number of bulls in the markets exceeds the number of bears in the markets, an overall 'uptrend' forms where the price of cryptocurrencies continues to grow due to higher demand. However, when the trend reverses and bearish momentum forms, the price of coins starts to fall – and continues to fall until the trend becomes bullish again.
Basically, bears and bulls complement each other. As the markets continue to rally in a bullish momentum, bears begin to appear that want prices to fall so they can enter the markets when the currency is lower. When enough bears enter the markets, the price hits rock bottom – and the bulls begin to resurface. Often, the same investor can be pessimistic at one point in time and optimistic at another, depending on how the market performs.
Best investment strategies for bear markets
Follow the News
It is critical for every cryptocurrency investor to follow the news, at least regarding the currency they have invested in. Set up Google News Alerts – or RSS feeds or follow news aggregators that let you stay up to date with everything that is happening with your currency.
While price updates are important, investors also need to follow the news to understand what developers are planning next, what other members of a community are proposing, what applications are using the blockchain that drives their currency, what partnerships platform hit recently, what the government has to say about its currency, etc. Keeping these aspects in mind, you will be able to make better and smarter decisions as a bear market investor.
Understand market trends and graphs
Market trends and charts need to be watched carefully. There are sometimes patterns and trends in cryptocurrency price movements that tend to reflect. A slow and steady decline pattern with short boom periods is one that has formed in the last eight months. Those who were smart enough to interpret it early on would have predicted that currency prices are likely to drop further in later months.
Therefore, you need to take a look at past charts and compare them with today's charts to ensure they don't make mistakes. After all, those who are warned are heard. While patterns and trends may not necessarily repeat themselves – but they do have a good rate of accuracy, at least when you consider the quarterly movement of cryptocurrency markets over the years, you can see that the last few quarters always show an uptrend.
Set Stop Loss and Stick to Them
Stop-Losses and Targets are two of the most critical tools that all cryptocurrency traders need to be familiar with. A stop loss order is basically a circuit breaker that ensures that once the price of a currency reaches a fixed low point, a sell will automatically take place. This ensures that traders do not incur losses (or larger losses) on their holdings.
What is more important than creating a stop loss is also very important! Sometimes traders tend to think that “markets will recover soon” and readjust their stop loss to an even smaller amount. If the markets do not recover, traders end up inflicting bigger losses. Therefore, you need to come up with a stop-loss creation strategy and stick to it – especially in bear markets where the price continues to drop very frequently.
Invest in renowned currencies
While it is always good to diversify your investments, when it comes to a downtrend in cryptocurrency markets, the best advice would be to only invest in reputed coins, which have a history of being around for some time – and a good market cap. The higher the market cap, the safer a coin is to invest during a downtrend – as these coins have an ability to bounce higher. For example, Bitcoin generally tends to bounce back more after a crash. Therefore, it is important to only invest in reputable coins rather than buying lesser-known altcoins when markets are experiencing bearish momentum.
Every cryptocurrency investor needs to understand stablecoins as a concept. Basically, if markets are going through a rough patch, buying stablecoins would ensure that your dollar holdings are unaffected. As 1 stablecoin = 1 USD, and this price will not change, you can divest from all other coins and put your money in these stablecoins until the moment reverses. The strategic use of stablecoins is a critical investment strategy in modern times when cryptocurrency markets are going through a rough patch.
Conclusion: Keeping Safe During a Bear Market
The final tip for safe investing during a bear (or even bull) market would be to never invest more than what you can afford to lose. The total money invested in cryptocurrency investments should not compromise your other daily operations and tasks. We hope this article will help you stay safe and invest smart as crypto markets go through a bearish phase.