Before we dive deeper into cryptocurrency investment strategies that you must follow during a bear market, let us show the difference between bearish and bullish markets first.
What Are Bearish and Bullish Market Trends?
The concept of ‘Bears’ and ‘Bulls’ has been around for quite a long time. These are basically the two kinds of investors that exist in any market. The term originated from stock markets and commodities markets – and has carried forward into the cryptocurrency markets as well.
Bullish Investors are basically those people who believe that the value of a particular stock, commodity or in this case, cryptocurrency, is going to rise over time – and hence they invest in it hoping for higher returns on investments in the future.
Bearish Investors are the people who believe that currency prices will not sustain over the long term and they tend to sell out their currency to avoid making 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 ‘bullish trend’ forms where the price of cryptocurrencies keeps growing because of a higher demand. However, when the trend reverses and a bearish momentum forms, the price of the currencies begins to crash – and continues to crash till the trend becomes bullish again.
Basically, bears and bulls complement each other. As markets continue to rise on a bullish momentum, bears begin to appear who want the prices to fall so that they can enter the markets when the currency is at its lowest. When enough number of bears enter the markets, the price hits a rock bottom – and bulls begin to resurface. Often the same investor can be bearish at one point in time and bullish at the other, depending upon how the market is performing.
Best Investment Strategies for Bearish Markets
- Follow the News
It is critical for every cryptocurrency investor to follow the news, at least regarding the currency that they have invested in. Set up Google News Alerts – or RSS feeds, or follow news aggregators which allow you to stay updated with everything that is happening to your currency.
While price updates are important, investors also need to follow the news to understand what the developers are planning next, what other members of a community are proposing, what apps are using the blockchain that powers your currency, what partnerships has the platform struck recently, what the government has to say about your currency etc. Keeping these aspects in mind will allow you to make better and smarter decisions as an investor in the bearish markets.
- Understand Market Trends and Graphs
Market trends and graphs need to be keenly observed. Sometimes, there are patterns and trends in cryptocurrency price movements that tend to reflect. A pattern of a slow and steady downfall with short periods of a boom is one which has formed over the past eight months. Those who were smart enough to interpret it early on would have predicted that the prices of currencies are likely to fall even more in the later months.
Hence, one needs to take a look at the graphs of the past and compare them with the graphs of the present-day to ensure that they do not make a mistake. Afterall, those who are forewarned are forearmed. While patterns and trends may not necessarily repeat themselves – but they do have a good accuracy rate, at least when you consider the quarter-by-quarter movement of cryptocurrency markets over the years, you can notice that the last couple of quarters always show an uptrend.
- Set Up Stop-Losses and Stick to Them
Stop-Losses and Targets are two of the most critical tools that every cryptocurrency trader needs to familiarize themselves with. A stop-loss order is basically a circuit breaker which ensures that once the price of a currency reaches a fixed low point, a sale automatically takes place. This ensures that the traders do not make losses (or bigger losses) on their holdings.
What is more important than setting up a stop-loss is also sticking to it! Sometimes, traders tend to think that ‘the markets will recover soon’ and re-adjust their stop losses to an even lower amount. In case the markets do not rebound, the traders end up making bigger losses. Hence, one must come up with a strategy of setting up stop-losses and stick to it – especially in bearish markets where the price continues to crash on a very frequent basis.
- Invest in Reputed Currencies
While it is always good to diversify your investments, when it comes to a bearish trend in the cryptocurrency markets, the best advice would be to invest only in reputed currencies, which have a history of having been around for quite some time – and a decent market cap. The higher the market cap, the safer a currency is to invest during a bearish trend – as these currencies have a capacity of bouncing higher. For instance, Bitcoin usually tends to bounce back the hardest after a crash. Hence, it is important to invest in reputed currencies only rather than going for lesser-known altcoins when markets are going through a bearish momentum.
- Understand Stablecoins
Every cryptocurrency investor needs to understand stablecoins as a concept. Basically, if the markets are going through a rough phase, buying stablecoins would ensure that your USD holdings are not affected. Since 1 stablecoin = 1 USD, and this price is not going to change, you can disinvest from all other currencies and put your money in these stablecoins till the momentum reverses. The strategic use of stablecoins is a critical investment strategy in the modern times, when the crypto-markets are going through a rough phase.
Conclusion: Staying Safe During a Bearish Market
The final tip for a safe investment during a bearish (or even a bullish) market would be to never invest more than what you can afford to lose. The total money that you put into cryptocurrency investments must not jeopardize your other day-to-day operations and tasks. We hope this guide helps you to stay safe and invest smartly as crypto markets go through a bearish phase.