If you ever land up in a bear crypto market, there is nothing to worry about.
When cryptocurrency prices drop by 20 percent or more, we call that a bear market. The bear market is no doubt depressive and can be very dangerous. So, investors need to mitigate the damage to their portfolios from the cryptocurrency market by employing a few tried-and-true methods.
In a bear market, investors take stock of their methods and make adjustments to address any problems they may encounter in the future. And it is very useful to remember a few critical things once the price of cryptocurrencies today keeps dipping.
About two years is the typical duration of a bear market
The median duration of a bear market in stocks is two years. In the history of cryptocurrency, bear markets have typically lasted for around 9 months. By contrast, the average bull market in stocks lasts more than six years. Bear markets are often shorter than bull markets, but they also keep lingering in the public’s minds longer.
The last bear market, in 2020, lasted only a few months, and this trend has continued in recent years. Some attribute this to the Fed’s intervention, while others argue that the faster information pricing is due to our improved communications infrastructure in the 21st century. Bear markets are getting shorter over time but can still last far longer than people anticipate. Make the appropriate adjustments!
Investing consistently little amounts over time
The most important thing to remember during downturns is that weak years in the market are typical and expected. The strategy of dollar-cost averaging can be useful for long-term investors. If you acquire assets regularly and for a long time, regardless of price, you may also buy assets at a discount when the market is down. Your long-term costs will average out, giving you a higher return on your investment.
Cash is a position
Although current inflation rates in the United States range from roughly 7 percent to 10 percent (depending on the source), the purchasing power of a single dollar does not fluctuate by more than a few cents from day to day. The dollar value of one share of SPY fluctuates daily, and it has been depreciating at a much faster rate. When dealing with a bear market, remember that survival is crucial. You can fight another day if you don’t blow yourself up. Abandoning underperforming investments in favor of cold, hard cash is possible.
This has been occurring frequently as of late. Cash is the asset of choice as investors flee the major asset classes. Everything from bonds and stocks to gold and cryptocurrency is changing hands. Traditional conservative players will shift their holdings away from risk assets like equities into “safer” goods like Treasury bonds in a “Risk off” climate. However, individuals are forgoing the 3 percent income they may earn in a bind in favor of complete freedom with cash due to the Fed’s hikes and the high inflation rate. You can also purchase puts on your portfolio (if available) or sell short assets you believe will underperform. The cost of a good night’s sleep is displayed in the options market.
Selecting the bottom is difficult
As traders, we are responsible for seeking out investments with a positive expected value, yet bottom picking has proven extremely difficult. Many of the most recognizable hedge firms were under-hedged leading up to the 2020 crash and over-hedged afterward. The best and brightest minds in the world could have better predicted where the market would eventually bottom out.
The success rate of selecting market bottoms during downtrends is low unless you have a long-term plan that allows for consistent deployment of money over time (DCA).
No one wants to see their investments at a loss. However, you must fully grasp the concept of a bear market or price decrease before making any further moves. Only risk what you can afford to replace as a result. And most importantly, you need to keep your mind calm and avoid panicking at all costs. Remember that strong cryptocurrencies have better resilience to suffer downtrends, so completing your research is important before putting money into any crypto asset.