Investing and Trading in a Bear Market – Top Strategies and Secrets

The cryptocurrency space has seen some better days. This year has been tough on everyone, including crypto investors: the fear and greed index has been stumbling on extreme fear and for most of the year the market was in bear territory.

Regardless of how overwhelming it may feel, it is worth reminding yourself that the current state of the crypto market is an integral part of a regular investing cycle. In this piece, we will explain what a bear market is and how to profit off of the uncertain times.

What You Need to Know About Bear Market

It is generally agreed that the bear market is defined by market prices dropping by more than 20%. At the same time, in the extremely volatile crypto space, such price drops, as well as sudden spikes, are quite common.

While some investors prefer to trust their gut and guess the current market cycle based on their intuition, there are a few signs that point to it. A crypto bear market is typically a long-term (over 3 months) price drop period in which supply outpaces demand.

Predicting the length of the bear market cycle is impossible, yet this is exactly what everyone wants to know. When analyzing bear markets of the past, one can conclude that prices may recover in two years.

Now, why do bear cycles happen in the first place? Typically, a combination of market events can cause a change of direction.

Macroeconomic events and economic conditions

Crypto is an asset class, which exists along many other asset classes, including stocks, bonds, derivatives and even real estate. Similar to other asset classes, the prices of crypto and market movements are impacted by a variety of macroeconomic factors, such as inflation, GDP growth, interest rates and others.

Excess leverage

Leverage provides investors with an opportunity to boost returns but it also implies higher risk. If prices decrease, particularly if they fall sharply, highly leveraged investors may be forced to sell, causing prices to drop further leading to a downward spiral.

Liquidity shortage

Crypto market cap fluctuates depending on the liquidity available in the market. Once investors start liquidating assets, the crypto market cap goes down along with asset prices.

Major regulations

Every time a major crypto jurisdiction announces changes in its regulation policy, the market reacts. If the changes are not particularly crypto-friendly, it almost certainly affects the price negatively.

Exchange hacks or bankruptcy

Security flaws or collapses of leading crypto exchanges always result in increased volatility, fear, and uncertainty. Many investors start to drop crypto assets from their portfolios and leave the market altogether, which results in the substantial decrease in prices.

Surviving a Bear Market

The good news is that there are many strategies that allow investors to take advantage of the bear market. We will cover the main techniques suitable for spot trading, margin trading, and perpetual futures that can become a solid base for your long-term plan.

General advice

The first thing you should always do is stop panicking, as selling at loss will hardly do you any good. Stick to your long-term strategy. If you make up your mind to hold your assets for five or ten years, you will witness a few bear markets and they should not worry you anymore. Once you make peace with the fact that you are holding (some of) your assets no matter what, everything will fall into place. Chances are the prices will rise and you will come out as a winner.

Buy the dip and DCA

One of the most popular bear market strategies is buying the dip. While many fear drastic price drops, seasoned investors see it as an opportunity to stock up on some ‘discounted’ crypto. Whenever the prices of those assets increase, they sell them and gain profit.

However, if you do decide to buy the dip, using a dollar-cost averaging (DCA) is advised to mitigate the risks. This strategy implies that you cannot possibly say when the dip occurs, as such you should make several trades during a bear market, not just spend all your available funds in one go.

Diversify your crypto portfolio

Bitcoin and Ethereum may seem like the best of a ‘bad lot’, but it does not mean that you should bet all your money on them. Diversifying your portfolio is one of the most reasonable things you can do for your future wealth. While there is an overall crypto market dynamic, prices for various coins and tokens fluctuate differently.

But before you rush into buying a dozen of random cryptocurrencies, do yourself a favour and research the marker first. Pay attention to the asset’s all-time highs and performance, check out the platform behind it, look out for grand updates, and try to predict when the next spike might happen.

Try out margin trading

Margin trading means taking on leverage to increase your position size. In a bear market, taking short positions makes sense since you borrow assets at higher prices with an expectation that you return them back when prices decline. Margin trading is risky but if properly executed, it may boost returns substantially.

HitBTC supports dozens of pairs available for margin trading with x5 and x10 leverage.

Consider perpetual futures

Perpetual futures allow traders to benefit from price moves in both directions. The perpetual futures markets are more liquid than spot, so there is less risk of slippage when closing the position. In addition, leverage up to x100 is typically available.

Currently, HitBTC offers 20+ pairs for perpetual futures trading, and we are constantly updating their list according to popular demand.

Look into staking

Staking is similar to a bank deposit. You are locking up your crypto for a certain period and receiving interest in exchange. Staking reputable tokens and coins may not earn you sky-high profits but at least you can save your funds and may even cover a portion of your losses as a result of price declines.

Majority of exchanges offer staking with a lock up period, but HitBTC came up with a better alternative. Instead of locking up funds, you can stake and access them at any time – the rewards are accrued daily on a minimum balance of the asset you are holding in your spot and wallet accounts.

HitBTC currently offers 10+ coins for staking with an APY of 40% and higher. Available coins include CVX, STETH, EMC, MINA, SMART, HYDRA, AXS, and others.

The Bottom Line

Markets evolve in cycles and you have to be prepared to face a bear market at a certain point. To remain sane and survive it, you need a long-term strategy, diversification, as well as knowledge of trading techniques and tools, which can help you thrive even in the most uncertain times.

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