Cryptocurrency is a very volatile market. It's been a wild ride so far for sure with some unprecedented highs and lows from 2021 alone. But with even the major coins taking a dip at the moment, we took a moment to think about what people could to do prepare for a crypto bear market. Of course bear markets could mean discounted prices for those who are investing over the medium to long term, so it's not necessarily something to be worried about but more an area of concern.
What is a bear market and how can it benefit investors?
A bear market is a sustained period when the prices of securities are falling and most investors are expecting them to fall further. This term is usually used for the stock market, but it can also be used for the cryptocurrency market.
In a bear market, it is often said that it's best to hold off on buying new investments. However, this doesn't mean that you can't make money in a bear market. In fact, if you're smart about it, you can take advantage of discounted prices and make a bundle!
Bear markets are good for those looking to build up their portfolio. In a bear market, cryptocurrency prices tend to go down across the board. That means that whatever coin you're holding is going to decrease in value regardless of whether it's a promising or established currency. So if you're looking to build a portfolio and diversify your investments, a bear market is the perfect opportunity to do so.It's good for short term investors too!
Short-term traders and those who aren't holding onto their coins long-term will be more than happy with a crypto bear market, as it will give them an opportunity to buy low and sell high! As we mentioned earlier, you might expect a standard bear market to last between 6 and 18 months. Given that crypto markets typically run in much shorter cycles, this is probably halved. Of course, with the crypto market being as volatile as it is, you can never know when a bear market will come or how long it's going to last for. It is a very new ecosystem.
However, if you do think that we've reached bottom and things are looking up from here, it would be wise to wait before you decide to invest. If you do decide to buy in and the market decides to take a turn for the worse, your investment will fall with the market. Pound cost averaging, or buying a set amount with fiat each month to ensure you buy more on down months and less on up months, is a good solution to this.
Bear markets don't last forever
As we've mentioned earlier, bear markets usually only last between 6 and 18 months. So that means that there's a light at the end of the tunnel.
How to prepare for a bear market
If you're worried about a coming crypto bear market, don't worry-you can take steps to prepare for it! Here are a few tips on how to do so:
- Make sure you're holding a variety of coins. That's why it's important to have a variety of coins in your portfolio so that you're not too reliant on one currency. When the prices of one coin start to drop, the rest of your portfolio will help to balance it out. Bear markets typically also shake out the alternative coins without a deep value proposition, so it could be an idea to consolidate into large caps if you are wary of a dip coming.
- Keep trading to a minimum. Yes, making money during a bear market can be tempting, but if you want to weather the storm, the best thing you can do is to keep your trading and investing to a minimum! Of course we'd never recommend not taking advantage of cheap prices, but if you're constantly trading, you're going to end up spending more money than you should. Essentially, buy if you have to but don't trade unless you have significant experience or are playing with money you wouldn't mind losing.
- Diversify your investments. This is another tip that applies whether you're in a bear market or not-it's never a good idea to only invest in one coin or company! The crypto landscape is very volatile and it's impossible to say who will come out on top.So make sure you diversify your portfolio as much as possible so that even if one coin fails, the rest will survive and you won't lose all of your money. As with the stock market, defensive blue chips hold out the best during downturns.
- Keep an eye on the news. If you do decide to buy in and the market decides to take a turn for the worse, your investment will fall with the market. So if you're buying in during a bear market, it's important to keep an eye on the news!Just remember that even though coin prices are at their lowest point right now, they've still come back from worse lows-and that means that there will likely be another bull run! So sit tight, get educated on the market, and enjoy the ride.
The risks associated with investing in cryptocurrency during a bear market
Some of the risks associated with investing in cryptocurrency during a bear market are:
- You may not be able to sell your coins at a later date for the same price that you bought them in
- The market may take a turn for the worse and your investment will fall with it
- You may not have the required knowledge to make informed decisions when it comes to trading
- You may not have the required time to research different coins and make sound investment decisions
- You may not be able to determine when the market will hit its lowest point and decide to buy in at that time
- Just because a coin is experiencing a bear market, it doesn't mean that it's a good investment-in fact, you might want to stay away from investing in any coin during a bear market unless you're an expert
- You may not be able to get ahold of the coin that you want during a bear market due to low liquidity and inflated prices
By understanding the risks associated with investing in cryptocurrency during a bear market, you will be better prepared for what's to come-as well as more aware of how and when to take advantage of the situation.
The cryptocurrency market will always experience some form of a bear and bull cycle, so if you understand bear markets and all of their associated risks and how best to prepare for them, then you'll be able to survive even the most volatile investment environment!
A bear market is a type of investment environment that describes the period when prices are falling. During this time, it's best to hold off on buying new investments or trading too much; you should also diversify your portfolio and keep an eye out for news about the crypto landscape. This will help you make more informed decisions with less risk of losing money.
The risks associated with investing in cryptocurrency during a bear market include not being able to sell at same price as bought them, not having required knowledge or time to invest wisely, only investing in one coin which could be bad if it fails-as well as low liquidity and inflated prices making certain coins unavailable during a bear market! But by understanding these risks beforehand and staying away from high-risk trades like ICOs and quick-flips, you'll be better prepared for investing in a bear market-and able to take advantage of those who don't understand the risks. If you have any further insights or thoughts, please do reach out and let us know!