Crypto 101: A guide to investing in a crypto bear market

Crypto is one of the best markets that investors are putting their money on. The crypto industry provides investors with a means of diversifying their portfolios aside from stocks and bonds. With this, the crypto market continues to grow. 

When it comes to crypto investments, investors need to be aware of the different markets that come with them. When prices in a market drop steadily for an extended period, it is called a bear market. 

A crypto bear market can be unsettling for investors since they signify a contracting or dropping market. This can be caused by a wide variety of internal and external events such as economic challenges, conflict, or foreign affairs. If you are an investor, here’s a guide on investing in a crypto bear market and how to do it properly:

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Phases of the crypto bear market

At various points during a bear market, investors can experience some twists and turns in their assets. To prepare for these changes, there are four distinct stages of the bear market that every investor must know. These are:

Accumulation phase

Once the market has hit rock bottom, a new project can begin or the previous phase can come to a close. Both of these events are known as the accumulation phase. This is the stage of a new venture or endeavours when pro investors or industry insiders invest.

At a crypto market's low point, many people are ‘buying the dip’ since the bottom has been reached in the current cycle. At this point, costs are at their lowest and the market's mood shifts from bearish to neutral compared to the previous cycle.

Run-up phase (Bull market) 

When the market starts climbing steadily toward new highs, it is now in a run-up phase. At this phase, companies gain the attention of technical experts and early majority investors. In the run-up stage, the market direction has become evident, and the prevailing mood has shifted from neutral to bullish.

As prices stabilise, the market enters the distribution phase, where the last of the investors enter. At these times, when investors see huge returns in a short amount of time, the market receives the most attention from the media.

Distribution phase

In the third phase, prices stabilise and sellers gain the upper hand. The transition from the prior phase's bullish mindset into the current phase's more neutral outlook is a sign that the cycle is now in the distribution phase. In a low unstable and slow-moving market, the price often trades in a narrow range that can last for several days or weeks.

Run-down phase (Bear market)

When a market cycle is nearing its end, it enters a period known as the run-down phase. Within the cryptocurrency bear market, many believe that this is the time of social media pumping with the firm conviction that prices can do nothing but rise.

Sadly, one of the most challenging factors investors must accept is that there will always be a decline. Holding onto your crypto investments in a bear market in hope of a price increase might greatly cut your return on investment and leave you with fewer options for future investments. 

Strategies when investing in a crypto bear market

Many traders and investors lose faith and quickly liquidate their holdings, which drives prices even lower and prolongs the bear market. With regards to crypto bear market prediction and getting ahead of it, financial experts recommend trading tactics that limit drawdowns. They also recommend taking advantage of price declines when learning how to invest in the crypto bear market. Some of these strategies are:

Diversify

Some market subsets always take a bigger impact than others during bear markets. Investors can limit risks and take advantage of rising markets with portfolios that are well-balanced. Investors can invest in a mix of large-cap market leaders and fast-growing new coins. This also includes non-fungible tokens (NFTs) and stablecoins. 

Move your assets

It's common sense that when prices drop, smart investors turn to assets that retain their value. For this reason, investment firms always need a place to stash their capital. They move some of their wealth into safer investments like cash, gold, or government bonds. When prices go down in the future, they can repurchase their assets and pocket the difference.

Get to know the growing market segments

Even when the market is crashing, some coins hold their worth. These are coins connected with rapidly expanding industries. For example, coins used in the online gaming and gambling industries strived despite the market downturn. 

If you have expertise in the inner workings of a certain market area, it can be worthwhile to investigate coins connected to DeFi. You can also invest in fan-based NFT marketplaces, cross-chain coms, and other decentralised apps.

Cover your costs

Making ends meet should be your main focus when you invest crypto bear market. As the value of your portfolio drops, you won't be in a position to make long-term decisions, especially if you've been depending on short-term gains in the market to cover your expenses.

Experts recommend to keep your spending in line with your income and save up to ensure financial security in case of an unexpected setback. Simply, only risk capital that you can afford to completely lose.

How long does the crypto bear market last?

Bear markets last an average of 289 days (9.6 months) which is much shorter than the typical bull market, which lasts 991 days (or 2.7 years). In the long run, bear markets occur on average once every 3.6 years. Despite the widespread belief that the bull market that ended in 2020 was the longest ever, the bull market that began in December 1987 and ended with the dot-com crash in March 2000 actually holds the record.

Although investing in a crypto bear market can be tricky, getting to know its basic phases and checking out a bear market crypto prediction can put you ahead of the game. It’s also crucial to be patient and choose to do nothing if the market seems too volatile. 

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Words by: Rica Miranda