In traditional finance, a “bear market” happens when the overall market cap drops by 20%. However, the exact definition may not apply to a market as volatile as crypto. Since April 2022, the overall crypto market cap has dropped by $775 billion.
On Monday, May 9, we lost ~$200 billion from the market cap. So, what exactly do you do in a crypto bear market when everything is in the red? Let’s find out.
#1 Try not to panic sell (if possible)
Your first instinct would be to follow what everyone else is doing, and panic sell to cut your losses short. If you plan on being a long-term investor, there are two things you need to tell yourself.
First, there is a reason why you invested in crypto. Maybe you love the underlying technology or open economies. Maybe you just want those crazy 10x gains or are simply looking to diversify. Regardless, staying true to your reason is the only way to go.
Secondly, the crypto market (as with any market) has seen multiple dips in the past. Historically, the market usually recovers from these losses and reaches new heights. Panic sellers don’t pocket profits from resurgent markets.
#2 Buy the dip (maybe?)
“Buy the dip” is a popular rallying cry in the crypto community during downtrends.
So, what exactly does “buying the dip” mean? It’s the practice of buying an asset after it has declined considerably in value. The idea is that the asset has long-term potential so it would likely bounce back. Usually, this strategy is applicable in crypto because the market is volatile.
Before you proceed to buy the dip, you must be as rational as possible. Just because crypto is available for cheap doesn’t mean you go out of control with your spending. Please don’t take on unnecessary risk and only invest an amount you are willing to lose.
#3 Consider cashing out in stablecoins
Coins like USDC, USDT, and DAI are stablecoins – cryptocurrencies pegged to $1. So if the market is going for a bit of a tumble, and you decide to sell, you could potentially cash out your crypto portfolio in stablecoins rather than fiat currency.
There are two reasons why you may wanna do this:
- Hedge your portfolio against price volatility. No matter what happens to the market, the price of stablecoins should always be $1.
- Keep some ammo in your account to immediately trade them for other coins when the trend reverses.
#4 Research projects and tokenomics
Instead of spending all your time looking at the markets, you may use this time to read up on and research different crypto projects. For example, there are payment coins and stores-of-value like BTC, smart contract platforms like Ethereum and Avalanche, metaverse tokens, NFTs, and DeFi governance tokens. Understanding the nuances of this space can be very helpful in the long term.
It is also essential to understand tokenomics. A project with good tokenomics will always have better long-term value than a project with sub-par tokenomics. To put it simply, Ethereum has good tokenomics since its native token ETH can be:
- Used as a payment token.
- Used to pay gas fees.
- Used to buy NFTs from marketplaces.
- Used to access Ethereum’s DeFi ecosystem.
- Eventually staked in Ethereum’s proof-of-stake.
A token that can take up multiple roles within its native ecosystem is said to have good tokenomics.
Make the best of the situation
Bear markets can be pretty brutal, and one can end up feeling very helpless. However, instead of freezing up, it is more prudent to make the best of a bad situation. The four tips delivered here will not only empower you to weather the storm but can potentially help you when the market trend reverses. The trend may not always be our friend, but it can always be a learning experience.
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