Crypto markets witness periods of boom and lull. When a market experiences sustained or substantial price decline, such markets are called bear markets. Bear markets can be stressful for investors as their investments are losing value, and there’s a constant environment of fear, uncertainty, and doubt (FUD). In a bear market, a prolonged drop in the cryptocurrency investment prices of 20% or more from the most recent highest price rise is seen. This drop is accompanied by general pessimism in the market and negative investor sentiment.
Bear markets can last for months or even years. Investors can easily get caught up in the slipping prices. Despite the slump and pessimism, a bear market could be a good investment opportunity for investors to buy the dip. Each market trend presents a different set of conditions, and investors and traders need to mould their strategies to suit them. If you want to beat the FUD and invest during a bear market, here are five investing strategies to consider before you ask yourself:
Buy the Dip
This strategy comes in handy in bear markets when investors are stressed about the market conditions but still seem to be optimistic about the market gaining momentum in the near future. Buying the dip strategy is a popular strategy in the cryptocurrency markets, which are prone to volatility. Investors wait for the prices to fall and buy when the price declines in the hope of earning profits when the cryptocurrency prices rise in the future.
This strategy may be a little on the bolder side and is more suitable for traders and investors with a high-risk tolerance. For instance, Bitcoin is witnessing one of its bear phases after touching its ATH in November. Investors buy Bitcoin believing that Bitcoin has great value and potential, and its prices are bound to rise again.
The first strategy, however generic it may sound, is arguably the most significant for any investor. Markets will continue witnessing ups and down; the investment tactic requires you to ‘relax, and play the long game.’ Investors can adopt a dollar-cost averaging (DCA) strategy and make consistent investments in smaller portions for a longer period of time. When investors use DCA in a bear market, they look for opportunities when prices hit specific points. The sustained investments during bear markets also reduce the overall impact of volatility on your investments and also assess the average return on your investments.
Crypto markets are prone to wild price fluctuations, and periods of correction and bear markets are as normal and inevitable as the bull-runs. Long-term investments guarantee higher and more stable gains to investors, provided they remain patient and focused on their investing motives.
Opt for Staking
Staking your crypto assets helps to give your investment an inherent value despite the price decline. When you stake, you commit your crypto tokens in exchange for rewards or interest, paid as additional tokens. These tokens are then used to validate transactions and mine new coins, particularly on proof-of-stake blockchains. Investors can leverage this strategy to put their tokens to work and earn a steady flow of passive income, no matter what the market condition is.
Invest in Stablecoins
Stablecoins are pegged to underlying assets like the US Dollar or gold. Stablecoin investment can be a good strategy in the bear market as they are relatively less volatile than regular cryptocurrencies. Many stablecoins in the market, such as Tether, USD Coin, etc., can act as a store of value for traders or a place to hold their assets until the market corrects itself.
Stablecoins, being pegged to tangible assets, help to stabilize the crypto market on the whole. Investors should invest in multiple stablecoins to hedge their crypto investments against market volatility.
Diversify your Portfolio
This strategy is a classic investment strategy that every trader or investor needs to opt to make their portfolio profitable and balanced. Investing in various cryptocurrencies allows the investor to hedge their investments, i.e., if the price of one cryptocurrency dips, the other investments can salvage the losses. Experts also advise extending the investment portfolio outside the crypto market for the lack of correlation between cryptocurrencies and traditional stocks will ensure better security and value appreciation.
Diversifying one’s portfolio isn’t specifically applicable to bear market conditions. Investors should always diversify across sectors, use cases, and types to balance their crypto portfolio. Also, investors should keep correcting the ratio of investments they have decided for their portfolio when they are buying or selling investments. Diversifying investments is akin to insuring your long-term gains.
Investing in crypto markets needs a continuous evaluation and DYOR ritual on the part of the investors. The choice of investment strategies depends on an investor’s risk appetite and the time and investment he can afford. It is best to stay confident and not let FOMO or pessimism control one’s investment decisions.