How to Survive a (Crypto) Bear Market

Investing strategies in a bear market header image

It seems inevitable now: we are amid a bear market… and perhaps the worst one yet. As the world struggles to absorb the shocks caused first by COVID-19 and then by global unrest, the cryptocurrency market has also faltered.

Due to the nature of the crypto industry, many investors and onlookers are now incredibly concerned and anxious about the market’s future — and that’s completely normal. The panic and disappointment afoot in most crypto (and non-crypto communities) are undeniably debilitating.

However, now is not the time to despair: many time-tested strategies work in bear markets. You only need to find the best one for you.

What Is a Bear Market?

First, let’s briefly discuss what bear markets actually are.

A bear market is typically a period of a long decline, which usually involves assets losing over 20% in value. Bear markets often coincide with periods of recession and increased inflation.

Additionally, bear markets are characterized by investors becoming a lot more risk-averse — which causes transaction volume and thus market liquidity to drop alongside the prices.

For a more in-depth look at bear markets, check out this article.

How Long Do Bear Markets Usually Last?

It’s hard to say how long bear markets usually last. The time frame can be anything from a few weeks to several years — it all depends on the market itself and the current state of the global economy.

What Type of Crypto Investor Are You?

The first thing you need to do to survive a bear market is to sit down and clear your thoughts. You need to set your priorities and formulate a trading strategy — this is crucial during times of turmoil. Bear markets bring a lot of fear and uncertainty, making it very easy to act irrationally. So, it is vital to take a step back and recuperate.

Unfortunately, screaming and panicking is not a valid trading strategy.

Setting your goals can be easier if you understand what type of investor you are and come to terms with your personal risk tolerance. If you need help figuring it out, you can pass our quiz here

Type 1: Better Safe Than Sorry

Let’s get this out of the way first — there’s absolutely nothing wrong with deciding to take a break and not engage in any crypto trading during times like this! Don’t let FOMO fool you. Any potential profit you’re missing out on could easily be a loss instead. If you’re a trader who does not like risk or, more importantly, does not have spare funds you can afford to lose, you stand to lose a lot more from a bear market than you stand to gain.

Instead, you can invest in relatively “safe” assets like bonds or ETFs. Don’t forget to do your research before going for them, though — some may not be as future-proof as others.

Type 2: Diamond Hands

Investment is a long-term game for you. If you are one of those people who keep buying up Bitcoin (or any other cryptocurrency) bit by bit, no matter the price, then you should probably hold on to your strategy — and funds — and keep buying Bitcoin, Ethereum, or any other asset you have already been accumulating.

This strategy allows one to average out the buying price of an asset, thus absorbing any shocks that may occur. It also relies on the notion that prices will continue going up over time. So, if you no longer have faith in crypto or Bitcoin, perhaps this strategy is not for you.

Type 3: Profit Above All Else

At the end of the day, most investors are after one thing: profit. All of us want to eventually see our bank (or crypto wallet) accounts grow. Fortunately, bear markets do not automatically cause our balances to shrink — there are ways to profit from them. However, how much and how quickly one can profit depends on one’s risk aversion. 

If you’re not the type to go all out, fear not: there are tried-and-true ways to manage risk during bear markets. Here are some of them.

Portfolio Diversification

The granddaddy of all financial advice is “diversify your portfolio.” The key to this is having a healthy mix of risky and reliable assets in your bag so that some can provide you additional profit boost while others can absorb the risk and any potential losses. 

You can make a crypto-only portfolio (e.g., one with USDT, BTC, ETH, APE) and a few other smaller coins and tokens, but it might not be the best thing to do, especially in a bear market. While some cryptocurrencies definitely have a higher chance of surviving than others, they still tend to have very similar price dynamics.

Seeking Out Reliable Assets

Looking for something worthwhile can take a while.

In general, businesses that have been in the industry for a while and have a foothold are more likely to survive the bear market. Additionally, it is usually a good idea to keep an eye on companies that have strong balance sheets and don’t operate on a constant loss. Such stocks can be a great reliable addition to your portfolio.

Don’t Invest More than You Can Afford to Lose

This simple rule should always be followed unless you really know what you are doing. After all, a 50% chance at making a profit does not mean anything when you also have a 50% chance of losing your home, retirement funds, or food on the table for the next few months. Please remember that bear markets can bleed you dry quite quickly.

Type 4: All About That Risk

Some investors (though usually, they are traders) like crypto trading purely because of the risk — and that’s ok. If the thought of a bear market spells infinite profit-making opportunities for you instead of anxiety and fear, then you’re probably one of them!

Having high risk tolerance in a market like crypto can be a very good thing, but only for as long as you can keep a cool head. After all, there’s never a high reward without high risk!

There are some universally good yet risky strategies that allow traders to profit from bear markets.

Shorting

Bear markets might be one of the best times to short assets. After all, what time is better for betting on assets to depreciate? However, it is essential to remember that this strategy is still incredibly risky — particularly so in the crypto market.

Read more about shorting here. If you would like to try it out for yourself, you can head over to our full-featured trading platform Changelly PRO.

Options Trading

Options trading is one of the most advanced trading strategies out there: in fact, most traders who engage in it rarely make a profit. As a result, sometimes it can even be compared to gambling.

If you’re serious about trading, it’s always a good idea to at least learn about such things as options, put spreads, and so on. One of the general strategies is buying put options after a bear rally to hedge your long (buy) positions. However, it carries with it high risk, so you should do your research before trying it out.

Type 5: Expert Trader

Let’s be honest: if you’re an expert trader, you probably don’t need this guide. However, if you only aspire to be one and share one’s characteristics, then some of this advice can be helpful to you.

Finding Assets with Huge Growth Potential

Betting on undervalued assets can be a huge risk, so it is not for anyone who is risk-averse. However, buying up cheap assets that have a lot of room to grow is definitely a top-tier profit-making strategy.

Look for assets that you think have solid plans and the ability to withstand turbulence in the market. However, in order to do this well, you have to grasp how the industry works.

Use Trading Bots

Trading bots are a great tool that can aid you in reacting to market changes as quickly as possible, which is incredibly useful in volatile markets like crypto. They also help make a profit from smaller price movements. Nevertheless, they are not fit for everyone. Expert traders will make the most use of them.

Final Thoughts

Although we tried to tailor the strategies for different types of traders, most of them can be pretty universal. Having a cool head has always been key to surviving a crypto winter. Don’t let the market make decisions for you — it’s okay to formulate new plans, but remember that bear markets, just like everything else, come and go.


Disclaimer: Please note that the contents of this article are not financial or investing advice. The information provided in this article is the author’s opinion only and should not be considered as offering trading or investing recommendations. We do not make any warranties about the completeness, reliability and accuracy of this information. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. Any investor, trader, or regular crypto users should research multiple viewpoints and be familiar with all local regulations before committing to an investment.