- Do not short sell your assets
- Act with a long-term perspective in mind
- Think about staking
- Consider dollar-cost averaging
- What are a bull and a bear market?
With Bitcoin growing rapidly last year and reaching almost $68,000, cryptocurrencies were gaining worldwide acceptance. Celebrities started promoting relatively unknown cryptocurrencies, and startups were appearing everywhere. However, the value of Bitcoin has dropped this year, and skepticism towards Bitcoin has been growing again, experts predicting a burst of the crypto bubble and a complete downfall of crypto owners. The market tolerance for financial risks has decreased significantly.
This market behavior causes anxiety among inexperienced investors. They are wondering whether they should try to sell off the falling assets or to the contrary buy more crypto while it is cheap. Experts give 4 tips for a bear market.
Since some investors might be worried that the prices will keep on falling, it might seem reasonable to sell off Bitcoin and other crypto assets. However, experts warn against this strategy explaining that it might make matters only worse.
“The time to short is likely over and would be an emotional decision based on the idea that the market is ‘going to zero’. The upside of buying now is exponential, the upside of shorting is extremely limited,” said Scott Melker, a crypto investor and trader known as the host of the popular Wolf of All Streets podcast and the author of The Wolf Den newsletter.
For a long time, crypto has been considered to be digital gold. However, it is an asset like any other, with its highs and lows. To understand it better, you should have a long-term perspective in mind when analyzing the market.
“The biggest successes in the [crypto] space were built when the markets were down, and I’ve never believed more in the long-term thesis being correct,” stated John Wu, the president of Ava Labs, a company that is developing a public blockchain platform known as the Avalanche.
A prominent example of this is Bitcoin. The world’s first cryptocurrency has had its periods of booms and busts. In December 2017, it dropped from $20,000 to about $3,200 in several days and then recovered.
John Wu believes that the price of Bitcoin will not remain at its current level of $38,500.
“While a 50%+ drawdown seems significant in most markets, seasoned crypto investors call it ‘Tuesday’. Bitcoin has seen a number of corrections of 50%+ and has always recovered and risen to new highs. People have a short memory, and seem to forget that Bitcoin dropped from $60,000 to $30,000 in 10 days last May. I expect a course correction and new highs down the road,” Scott Melker reiterated in his interview to the Fortune magazine.
During a decline in the market, some investors feel anxious about their assets dropping in value and try to find ways for portfolio optimization. A good way to improve the security of your crypto assets and achieve more long-term gains is “staking”.
Basically, staking refers to the process of locking your cryptocurrencies on a blockchain for a certain period to receive rewards. It can be more profitable than keeping money in a bank account as it helps to use your money more efficiently and get higher returns. For example, you can stake Ethereum on Binance with an APY of up to 5.20%. Staking can be done via exchange platforms such as Coinbase and Kraken, software, and hardware wallets. Mining farms also offer staking services with interest rates of 20%, 30%, and even higher.
“Staking is an excellent way to increase exposure to a platform or asset that you strongly believe in. Return is more easily forecasted, often entirely known going into the activity, and far outperforms what individuals can expect from something like a high-yield bank account. There is risk in the underlying asset not growing in value, but I see staking as a very clear concept for both individuals and institutions to grasp as a way to steadily increase their holdings in networks they are bullish on both short-term and long-term,” said John Wu in his interview to Fortune.
Scott Melker agrees that staking is a good strategy but also admits that there are certain risks associated with it.
“Staking is a great strategy for earning passive income and yield, akin to a high-interest savings account, which clearly does not exist anymore. The caveat is that there is counterparty risk, because you are counting on the platform or protocol to survive high volatility. Do your research and decide where your coins are safest and only expose what you are willing to put at risk,” Scott Melker said in his interview with Fortune magazine.
Dollar-cost averaging refers to the strategy of regularly investing fixed amounts of money in the same asset such as shares, Bitcoin, or altcoins regardless of the market conditions. In a bear market, this practice may be used for gradually building up the portfolio.
“Dollar-cost average is a sensible, time-tested approach to increasing exposure to an asset or asset class, without needing to ‘time the market’. As we’ve seen over the last year, a down market can rapidly turn into a bull market, so steadily accruing is a great strategy for growing your portfolio at a pace you’re comfortable with,” said John Wu.
Melker shares the same opinion, emphasizing that this strategy is most profitable in the current bear market.
“Dollar-cost averaging is agnostic to bull and bear markets. It’s a “forget about it” strategy that allows you to buy at every price, taking advantage of both dips and rips. The bear market is the best time to do it, but it should be actively happening regardless of price.”
Брокеры, которые зарабатывают на росте цен называются быками. Соответственно в моменты, когда стоимость активов на бирже растет, рынок называется бычьим. По аналогии с быком, поднимающим врага на рогах вверх.
Bears are market participants who make a profit when prices drop. The allegory is based on the fact that a bear swipes its opponent down in a fight. When the value of Bitcoin decreases, the Bitcoin market is described as a bear market.