What is a Bear Market?
Traditionally, bear markets are identified by a 20% decrease in price following recent highs. However, 20% changes in price are an everyday occurrence in cryptocurrency. In crypto, bear markets are usually defined by a downward trend for months at a time.
So the bear market is here. Prices have been trending downward since November and they are constantly hitting new lows. The past few months have been challenging and we may be looking at a long winter ahead.
Your only goal during the bear market is to survive. The simplest way to do this is to pick good projects and use dollar-cost averaging. Here’s how.
Finding Projects
During a bear market, it’s a good idea to keep your portfolio top-heavy. What does this mean?
Instead of investing in small, high-risk projects, center your portfolio around blue-chip projects.
A blue-chip project is a project that has a great reputation and is known to be reliable and trustworthy. Blue chips tend to have a very large market cap. Market cap refers to the total value of a crypto project (number of coins in circulation multiplied by the price).
During past bear markets, blue-chip projects tended to perform better compared to altcoins. This is due to the high-risk nature of smaller projects. This does not mean you need to abandon your altcoins; rather, consider allocating funds to established projects.
One way to identify good assets to hold is by looking at big companies and which tokens/coins they are looking to create trusts for. A great example of this would be Grayscale’s assets under consideration and its current products. This is a great resource to identify coins that are more likely to survive the bear market.
Dollar-Cost Averaging (DCA)
Some investors may try to time the dip, but this approach often fails. The truth is, no one knows where the bottom actually is. While you may think that it is a good time to buy in, prices may keep dumping after your purchase.
This is why Dollar Cost Averaging is such an effective strategy. In short, DCA entails buying into a project in small increments as opposed to buying or selling large sums of crypto in a single purchase. Investors make purchases over regular intervals regardless of the current price. These intervals can be daily, weekly, or even monthly.
The amount of money you put in and the intervals you choose are up to you and your budget. Generally, when the price is higher, the intervals are longer, and while the price is lower, the intervals are shorter.
This is a proven way to protect yourself from volatility in prices and it is much safer than trying to time purchases on your own.
Do some people successfully time the dip? Yes.
Will you successfully time the dip? If this is your first bear market, the answer is most likely no.
Dollar-cost averaging provides you with a much safer and more reliable strategy.
Don’t Give up!
Whether it be completely selling everything or aping into sketchy altcoins, bear markets can lead people to make rash decisions. As long as you do ample research on the projects you want to invest in, then DCA in, you should be able to survive the winter. Get involved in the community, learn as much as you can, and whatever you do, don’t give up!