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Tips for navigating the crypto bear market

Posted: 7 June 2022 5:01 pm

Crypto market downtrends can be disheartening, but there are ways to make the most of them and to mitigate losses.

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To say that it's hard to watch the value of your crypto portfolio drop by 70% to 80% in what seems like almost no time flat is an understatement. Let's be honest: It totally sucks.

But these sorts of drastic moves to the downside are just as common in crypto as the significant moves to the upside. If you can learn how to not only survive the lows but also take advantage of them, then you're positioned well next time a bull market resumes.

Finder spoke with experts from eToro Australia, who shared tips for how to survive as an investor when crypto market conditions are less than ideal.

If you didn't sell high and you are here even after this five-month crypto downtrend, then congrats! You've made it further than most people who sell their digital assets and walk away once the market goes into a prolonged downtrend.

Take note of five tips provided to us by Robert Francis, managing director at eToro Australia, and Josh Gilbert, market analyst at eToro Australia.

1. Stake your crypto

If you plan to hold a crypto asset for years — through highs and lows — then consider staking the asset.

When you stake your crypto, you earn more of the crypto asset that you stake. Staking rewards are similar to stock dividends.

Robert Francis goes into further detail on the pros and cons of staking:

"Staking is a passive way to earn income. So if you're looking to hold your crypto over a long period, staking can be a valuable way to continue to be rewarded for holding your assets. However, some exchanges require you to 'lock' up your assets to receive your reward, which may not be the right move if you're looking to sell.

While not all digital assets can be staked, many can. For instance, eToro Australia users can stake Cardano and Tron with varying amounts of yield, and intro days."

While not all digital assets can be staked, many can. Depending on the platform, Ether (ETH) — the native asset for the Ethereum blockchain — is a major digital asset you can stake.

2. Consolidate your portfolio

During a bear market, coins with larger market capitalisations like Bitcoin (BTC) and Ethereum will likely not decline in price as dramatically as other altcoins.

Josh Gilbert expands on the difference between how larger and smaller cap digital assets perform in market downturns:

"Corrections in crypto markets average at around 51%. History shows that altcoins tend to perform worse in bear markets than large assets such as Bitcoin and Ethereum."

Because such severe corrections in crypto markets are common, Gilbert adds:

"It's also vital that investors only invest what they can afford to lose."

3. Learn to manage your emotions

Downturns in the crypto market can be emotionally challenging. If you've lost money in markets, you may be tempted to revenge trade to get it back. This is why, according to Gilbert, it's important to be aware of your emotional response to a down market.

"Emotions in trading play a key role. While the crypto market can often invoke a lot of passion, it's important that investors keep their emotions at bay and take a calculated approach when investing.

There can be great opportunities when assets begin to decline, especially when we see drawdowns of 50 per cent or more. However, bear markets are often brutal, so expect further downside even when you start to buy."

4. Don't try to buy the exact bottom

Most of us swear that we will sell the top and buy the bottom. What we mean is that we hope to sell our assets when their prices peak and then buy them back when the prices of these assets are low.

Almost no one pulls this off, though.

It's also particularly difficult to buy the bottom with so much global, macroeconomic uncertainty.

Gilbert shares:

"It's too early to call the bottom of this market, given there is still a lot of uncertainty, from geopolitical tensions to an unstable macro environment.

However, I would struggle to see the price of bitcoin falling below USD$20,000. This level will act as a huge level of support that I would be surprised to see broken."

So, when prices of digital assets are relatively low as compared to their all-time highs, you might consider dollar-cost averaging into the digital assets that you want to acquire.

Gilbert explains both what dollar-cost averaging is and its benefits:

"Dollar-cost averaging works by investing smaller, fixed amounts on a regular basis over an extended period of time, rather than investing all of their capital in one go. This means if we stay in a bear market for an extended period, investors can continue to buy if markets fall lower."

5. Practice patience

Most of us get into crypto because we hear we can get rich quick. However, for most of us, this doesn’t happen.

Bear markets give us an opportunity to practice our patience. We have a chance to buy digital assets that we wanted to buy months earlier when they were hot, only now we can buy them at a discount.

If you buy some of these assets at said discount and patiently hold them until the next bull run comes around, you may find that you've put yourself in a better position to capitalise on the bull market.

As Gilbert says:

"We tend to see market cycles in crypto — meaning that we have bear markets, but after extended losses, we see gains. It is difficult to see a future in financial services without crypto and blockchain, so I expect to see prices recover long-term."

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

Bottom line

Crypto bear markets can be tough to weather, but if you've hung around this long, you've come further than most.

Bear markets are favorable times to invest in a practical and measured way. They also provide us with an opportunity to master our emotions and practice being patient.

Keeping expert tips in mind, you can not only survive this bear market, but also find yourself in a stronger position financially once the next bull market comes around.

Finder or the author may own cryptocurrency discussed on this page.
Image: Getty.

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