The crypto market is really volatile; its values may shift dramatically within a very short span of time. Bull markets are exciting and optimistic for investors, while bear markets create fear and uncertainty among them. It does not necessarily mean you cannot make money despite falling prices. Just so you know, bear markets present some unique opportunities for the wise investor. Here’s your complete guide on how to make money in the bear crypto market.
Understanding the Bear Market
Cryptocurrency bear market is essentially a long sustained price decline customarily 20% or more from the latest highs. The condition may be triggered by negative news including bad regulatory news, macroeconomic trends, or some form of negative sentiment. If you know the central cause of the bear market, you will understand how best to navigate this situation and look out for some related opportunities.
Also Read: How to Secure Your Cryptocurrency Assets: A Comprehensive Guide
Making Profit in a Bear Market
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Selling Short
This strategy involves selling short and is used by investors to benefit from a drop in asset prices. In cryptocurrency, you can borrow the coins, sell them at the prevailing market price, and when the price goes down, you can buy the coins at this lower price and return them to the lender. This difference is your profit. Here’s how it works.
Select a reliable exchange: Not all exchanges facilitate short selling. You’ll need to find a platform like Binance or Kraken that trades with margin.
Select the appropriate coin: Focus on the coins that have a strong trend downward or are fundamentally weak.
Watch Market Trends: Leverage technical analysis and market indicators to power your entries and exits.
Although high profit can be garnered from a short sale, it is highly risky, especially in a volatile market. The price can go up again unexpectedly, which will make you incur losses.
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Dollar Cost Averaging (DCA)
Prices may still keep going downward in a bear market. Investors become at a loss on which time to buy. DCA can further lessen the risk of the market timing by spreading the investments among time. This is how DCA can be executed:
Set a Dollar Amount to Invest: Set up a specific amount to invest in cryptocurrencies, such as weekly or monthly.
Buy Regardless of Price: Stick to your schedule no matter what the market conditions are, thus allowing you to amass more coins when prices are lower.
Build a diversified portfolio: Consider investing in different cryptocurrencies to further reduce risk.
DCA would allow you to gradually acquire assets and potentially lower your average purchase price over time.
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Trade Volatility
Bear markets are very unpredictable, offering any swing trader and day trader opportunities to take advantage of price actions.
To start taking advantages of price swings:
Learn Technical Analysis: Learn how to read charts pattern, indicators, and trends to make educated and reasonable decisions.
Set Stop Loss Orders: Place stop loss orders in your account to stop you from “stepping into negative pools” if your bear market trade.
Use Leverage Wisely: There are lots of platforms that offer you leverage. Leverage can boost your profits. It increases risk too. So, use it wisely.
Stay on top of the news: The market mood can change within days, sometimes within hours. It just depends on news events. So, stay in touch with what’s happening in the crypto space.
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Invest in Stable Coins.
Stable coins are pegged to stable assets like the US dollar. They serve as a safe haven during the bearish markets. Here is how to use stable coins.
Earn Interest: Platforms like BlockFi and Celsius pay you interest on stablecoin deposits. It could be a good source of returns while waiting for the market to bounce back.
Build ahead of buying opportunity: Stably hold cash in case of a downturn and benefit quickly from a favorable buying opportunity when the price falls.
Reduce Volatility Exposure: Moving volatile crypto into a stable coin protects your capital against more loss during prolonged bear markets.
Also Read: “Is Cryptocurrency Legal in India? Exploring the Legal Landscape”
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Diversification of the portfolio
Diversification of your cryptocurrency portfolio is a great way to reduce the risk of a bear market. Consider this:
Diversify by sectors: Watch out for holdings in different sectors of cryptocurrencies such as DeFi or NFT and blockchain technologies.
Fundamental focus: Invest in coins with a sound use case and development teams that can rebound fast in a bull market.
Consider alternative investments. Indeed, you would want to identify traditional assets like stocks or commodities which would give a sense of better performance in downturn.
