The plunging prices of a crypto bear market can make even experienced investors uncomfortable.
Yet where there is uncertainty, there is opportunity, and crypto bear markets can ultimately be lucrative for investors who know how to navigate them successfully.
To help you find your way through the crypto bear, here are five top tips for making the most of available opportunities and avoiding common pitfalls.
1. Consider “buying the dip”
“Buying the dip” is the strategy of buying an asset when the price has fallen, in the hope that it will rise again beyond the purchase price.
This strategy can be appropriate for a bear market, if your time horizon is long enough, and you have enough conviction that the asset will eventually rise again.
When prices do recover, dip buyers can be rewarded handsomely. Yet advocates of this strategy also emphasize the importance of not investing more than you’re willing to lose in the event that prices continue to fall.
2. Dollar-cost average
One of the most popular bear market strategies involves buying small amounts of crypto at regular intervals, typically each week or month. This can help you to avoid the temptation of trying to time the exact bottom of the downturn; a risky strategy known as “catching a falling knife”.
By investing a small fixed sum at regular intervals regardless of market conditions, you avoid the possibility of exhausting your funds, and then watching prices fall even further.
Nevertheless, while this strategy can help you to deal with the uncertainty of markets, it does not guarantee that prices will rise again. That’s why it is critical to conduct your own research prior to investing.
3. Avoid “panic selling”
At the first sign of falling prices, you may be tempted to begin selling your crypto, in the hope of buying the same assets again later at lower prices.
This type of panic selling can be risky because it assumes that you can accurately time the bottom of the market. What can happen instead is that you end up selling close to the bottom, and then don’t benefit from the recovery when prices bounce back unexpectedly.
Of course, avoiding panic selling does not mean investors should never sell when an asset’s value is dropping. The key is remembering your own investment plan and not selling simply because the price is dropping.
4. Diversify your portfolio
Although impulsive panic selling can hurt your investment portfolio, using a bear market to make strategic allocations to different assets can be helpful in the long-term.
This might mean selling riskier investments in favor of more established cryptoassets that you are more confident have a bright future. Or, bargain hunting assets that are significantly discounted and represent good value.
Ultimately, by spreading your investment between different cryptoassets, you will be less likely to be wiped out by the death of a single coin, enabling you to weather the bear market and eventually continue to grow your portfolio.
4. Earn yield by staking
One way to maximize returns during a bear market is by staking, which involves locking your cryptoassets on a particular platform or blockchain protocol to earn rewards.
This strategy is made easy on eToro. Our dedicated staking service allows you to receive rewards for staking your assets, including Cardano, Ethereum, and TRON, without the technical know-how needed to execute the staking procedure.
However, though it can be lucrative and help you emerge from the bear market with a profit, staking is best-suited for those taking a long-term approach. Assets can be subject to lockup periods, and there is always the risk of loss when falling prices don’t recover.
5. Take the opportunity to learn
The quiet calm of a bear market can help you remember that the best investment you can make is in yourself
Bear markets can be an ideal time to develop market analysis skills, learn the technical details of different assets, and build a greater understanding of markets to better identify the potential signs of a market recovery. Check out the eToro Academy, which offers a broad variety of the resources you need, in the form of articles, webinars and posts, to help you learn how to be successful in trading and investing.
This way, when an investment opportunity presents itself , you will be ready to seize it!
With these five tips in your back pocket, you should have no trouble making the best of a crypto bear market.
Note: The above is not financial advice, and only an outline of common strategies observed within crypto bear markets. It is to be used for educational purposes only.
Crypto assets are unregulated & highly speculative. No consumer protection. Capital at risk.