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How to make money from a bear market in crypto
Like any financial market, cryptocurrencies also go through different market conditions throughout the year, specifically bull and bear markets. Bullish markets are generally when crypto investors trade the most since the value of assets is rising, while bearish markets are dreaded by many since prices are falling.
However, what if we told you that making money in crypto bear market is possible? This article aims to provide wise investors like you with a guide on manipulating a bearish crypto market and taking advantage of it to gain profits. Here's everything you need to know:
Understanding crypto in bear market
A bear market crypto may be defined differently than those in traditional markets. For instance, a bear market in conventional markets will occur when the prices fall by more than 20% compared to the previous high.
This definition can't be said about the crypto bear market cycle as it's more volatile, and prices fall and increase on any given day. Instead, what happens in a bear market crypto is that prices of tokens fall crucially for a prolonged time along with market confidence. During this period, supply exceeds demand, meaning the market is bleak.
Lastly, the crypto bear market duration often takes around three months or more which causes investors to worry since they fear their investments won't generate profits and will be forced to sell them.
What causes a bear market crypto?
Several reasons can contribute to the fall of a particular asset's value. With cryptocurrencies, it can be one or a combination of the following reasons:
Crypto influencers’ sentiments
Throughout the years, various personalities have emerged and have since been considered influential to the crypto industry. These 'cryptopreneurs' can affect the purchasing decisions of their huge following, which can then affect the trajectory of a specific asset.
Some of the most notable personalities today whose sentiments can affect the market include investor Elon Musk, Ethereum co-founder Roger Ver and more. When these individuals share their thoughts online about a specific asset, their supporters or so-called 'followers' will take an interest in it and then affect the price.
Security breaches
Since the inception of cryptocurrency, there have been several instances where a coin's security has been breached/hacked. When this happens, crypto investors tend to panic and sell their assets immediately to prevent further damage to their finance.
Newly established crypto regulations
Since the crypto industry hasn't been considered legal tender, unexpected regulations can suddenly be implemented.
For instance, a country's government can suddenly ban cryptocurrencies, but that region makes up a huge portion of the coins' circulation. If this is the case, this can cause an upset in the industry and lead to a bear market.
A prime example of this was when the government of China restricted Bitcoin mining back in 2021 as they were concerned about the digital currency being subjected to manipulation such as fraud and money laundering. Occurrences such as this can upset the market and lead to several investors pulling out their investments.
Liquidity deficiency
Liquidity is a vital part of every tradeable asset, whether it's stocks, bonds, cryptocurrencies, etc. A lack of liquidity means that an asset's price is more volatile, causing unexpected spikes in its value.
How to make money in crypto bear market
Due to its low demand and high supply, the bear market is dubbed the 'fear phase' since it's extremely dreaded by investors. However, this should only sometimes be the case since there are ways to profit during these times. In this section, we've listed some of the most useful crypto bear market strategies to help you protect your investments.
However, these methods and tips have risks you should be willing to take. Here are some of the things you should remember when facing a bear market in crypto:
Engage in yield farming
Yield farming is one of the most popular investment methods used in cryptocurrency as it can guarantee a stable return over time due to interest. When the market price falls, you can put your digital assets down for Decentralised Finance platforms and earn in the long run.
For instance, the assets you've lent can be loaned to other users, giving you a specific percentage of interest. Remember, the percentage of your interest depends on the amount you lend to the platform and how in demand your token is.
Before allotting your assets to these platforms, research them beforehand. Make sure they're legitimate and check to see if you can earn interest in the long run.
Stake crypto
Staking crypto during bear markets are a great way to earn cryptocurrencies passively. Much like yield farming, this involves you 'locking up' your assets, but this time, instead of lending them in DeFi platforms, you are staking them in a blockchain network.
This method is done in cryptocurrencies that follow a proof-of-stake consensus mechanism. Here, random validators are chosen based on the amount of the token staked in the network. After being selected as a validator and successfully verifying a transaction, you can earn cryptocurrencies even if the market is bearish.
Use margin trading
If you can take the risk and have several experience trading in the crypto market, you can try margin trading. This method lets you trade using more money than you have to be exposed to more enormous profits with the help of brokers.
However, consider this method's risks, as the repercussions can be as drastic as losing all your capital if the market doesn't favour you. Regardless of whether you profit, you'd have to repay your broker for the amount you borrowed.
Wait for crypto forkings
Forking happens in a cryptocurrency when the users within the blockchain disagree on a new update that introduces new features. When this happens, forking occurs, which diverges the original blockchain and creates a new one equipped with the proposed features. Meanwhile, the original blockchain network will remain as it is.
If you're one of the nodes in the network that voted for the new features, you are granted the tokens that will be used for the newly-formed blockchain. These contain a set amount and are sent directly to users' wallets.
By holding these new tokens, you can earn significant profits depending on the value of the forked token.
Keep an eye on up-and-coming DeFi projects
Countless DeFi projects are being designed and launched every day, and if you're a wise crypto investor, you should pay attention to them. At first glance, it may seem like these small projects don't offer much, but if you take a closer look at them, they can promise considerable returns in the long run.
Even if the crypto market is bear at the moment, the wisest crypto enthusiasts can gain exponential profits when they invest in up-and-coming DeFi projects.
Buy the dip
One famous bear market crypto strategy is the 'buy the dip'. This tactic involves buying assets at their low price, specifically during a bearish market. Then, once the prices of these assets go back to their normal state or reach a new high, you can profit from your investments.
This strategy isn't new since it's also been a longtime favourite tactic of investors in traditional markets.
Diversify your portfolio
Putting only some of your eggs in one basket is important when investing in cryptocurrencies. This way, when one of your invested assets' value falls, you can still count on your other investments and minimise your potential losses.
This is because some market segments are more affected than others in bearish markets, and having your investments spread across various assets can help cushion the damage.
For example, rather than putting all your capital in a single token, you can divide your funds and invest in various options such as large-cap market leaders, cryptocurrencies specific to NFTs, DeFi tokens and more.
Lastly, spreading your investments across different assets will help expose you to bigger gains.
Avoid panic selling
Investors sell their assets to avoid further losses when a bear market occurs. Although this may sound like good advice initially, doing this doesn't benefit you.
Selling your cryptocurrencies while they're at their low price means you'll be losing the money you initially invested in buying them in the first place. In simpler terms, you won't get an accurate 1:1 return on your investment.
Instead, experts suggest remaining calm and composed while holding onto assets since the bear market will eventually end. The good news is that bear markets always end with recovery, and those who manage to stand their ground can reap great rewards.
The only risk of doing this is that some cryptocurrencies can't survive a bear market and won't experience the same return as others. However, as we've stated in the previous points, you have nothing to worry about if you've diversified your investments.
Stay out of volatile markets
Avoiding crypto market volatility may initially seem counterintuitive, but it's not impossible. When you start seeing the prices go down on your invested cryptocurrencies, you can lie low in that market for a little while and shift your focus to assets that can retain their values.
That's why some investors choose to hold other assets outside of cryptocurrencies, like real estate. However, if you don't want to leave the crypto industry, you can opt for stablecoins pegged to real-world fiats.
Gamble with crypto
Here's a crypto strategy for the bear market that will let you have fun in the process. As the prices of various cryptocurrencies stoop to low levels, use this opportunity to place your bets in various online casinos.
Crypto gambling offers a seamless online casino experience that guarantees a brick-and-mortar casino experience but with added convenience and accessibility. The best part is you can connect your different crypto wallets for a more seamless experience.
While your cryptocurrency's value is low, multiply it when you use them to wager on various online casino games.
FAQs on bear market in crypto
What is a bear market in crypto?
A bear market in crypto pertains to the prolonged time when almost all assets are affected by a negative price spike.
How long does crypto bear market last?
The average crypto bear market length is around three months or more.
How to trade crypto in a bear market?
Trading crypto in a bear market requires a lot of experience and bravery since you can lose a significant portion of your investment if not done right.
To start, use any crypto bear market strategy we've listed above. For instance, you can engage in margin trading to be exposed to greater returns with the help of a broker's funds. However, you must also consider the risk that comes with it.
How to survive crypto bear market?
You can use various strategies to survive the crypto bear market, one of which is to hold your assets.
How to prepare for crypto bear market?
Before knowing what to do in a crypto bear market, you must first know how to prepare for it, and one of the ways you can do this is by diversifying your portfolio. Although there's no definite way to make an accurate crypto bear market prediction, you can prevent huge losses by preparing for it.
The bottom line: Can you profit in a bear market?
The bear market is notorious for being feared, and for good reasons. However, it's not a time when it's impossible to make money, as you can do so by following the bear market crypto strategies we've listed above. Remember that no bear market trading strategies crypto is ever risk-free, so do prior research before investing your capital.
Words by: Jericho Paradeza
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