Top 5 Moves to Make in a Crypto Bear Market

2022/06/23 09:39:07

The cryptocurrency bear market cycle is the inverse of a bull market. It is characterized by significant price drops in cryptocurrencies that can last anywhere from a few days to several months and then a prolonged period of bearish market sentiment afterward. A bear market can have a variety of effects on your investments. For instance, you may be forced to sell some of your holdings in order to meet basic needs or obligations. You may also need to change your investment strategy and the amount of risk you are willing to take on with your investment

Since the bear run lasted for about four years, ending in early 2018. The bear market typically lasts for about four years, with an average of 18 months. This is why it is important to set your investment strategy during different phases of the market. It may seem like you are taking a risk when you buy an expensive piece of real estate or stock, but if the market doesn’t fully recover in that time frame, you can be more secure that your investment will return a profit. If the market recovers, you will almost certainly make more money in the long run.

What is a Cryptocurrency Bear Market?

Each cryptocurrency investor will have their own definition of what constitutes a crypto bear market. A broad definition of a traditional bear market is any time market prices fall more than 20% from a previous high. However, given that the cryptocurrency market is no stranger to historical highs and lows on any given day, this definition isn't as useful.

As a result, a crypto bear market is better defined as a prolonged period of time (around 3 months) in which market confidence is low, prices are falling, and supply exceeds demand. Thus, we can say a bear market is a period in which the prices of securities or commodities are falling. It can also refer to a period of economic recession, in which economic activity slows down.

The cryptocurrency bear market, on the other hand, is characterized by consistent price declines in digital assets. The cryptocurrency bear markets usually last for months and sometimes years. One notable example was the so-called “crypto winter” that lasted from December 2017 to June 2019 when we saw Bitcoin’s price fell from $20,000 to $3,200.

Are We in a Crypto Bear Market in 2022?

Who you ask makes a difference. Since December, the prices of many popular cryptocurrencies like Bitcoin and Ethereum have been decreasing, where BTC lost over 60%, and ETH lost over 70%.

This has led some investors to think that the bull market is over and that we are now in a bear market. Others point to the drop from May to July 2021, when the market quickly bounced back and hit new highs, avoiding a bear market altogether.

Some extremely pessimistic crypto investors believe the market is about to enter a crypto winter, in which prices plummet with no sign of recovery in sight. All of this is to say that it remains to be seen. Demand may soon rise, balancing supply and stabilizing prices, or investors may continue to sell, driving the price down.

It's hard to keep your cool when crypto-assets are losing double digits. But don't bury your head in the sand; instead, take these simple steps to capitalize on this bear market opportunity.

Market Cycle

Here are the top 5 moves every crypto investor should make when everything seems like it's in the red.

1. Keep Calm, Don't Sell in Panic

When the market is in a slump, investors are frequently faced with the decision of whether to sell their digital assets. The best course of action is to keep calm and avoid panic sell. This is due to the fact that cryptocurrencies have historically recovered from downturns, and investors would have made more money if they had held on to their coins rather than selling them during a downturn. When the market is down, this section advises investors on four things to do. These steps will assist you in keeping your losses to a minimum and gains to a maximum.

Step 1: Set a Price Target as a Goal

Being an investor, buy cryptocurrency with a specific plan in mind. You should set price targets so you know when to sell. Frequently, cryptocurrency traders will look at the market and decide that it is time to sell based on how far the digital currency has fallen. However, this is not always the case because coins have recovered and fallen in the past.

Step 2: Figure out When You're Going to Sell

Determine when you will sell based on the amount of time you have set for your price target. Digital currencies frequently lose value faster than expected, making it difficult to decide whether or not to sell. The investor may have to wait for a period of time for the coin to rise again.

Step 3: Determine How Much to Sell

Once you have decided that it is time to sell, determine how many of the cryptocurrencies you will sell. This is not always an easy decision and every investor should consult their trading plan to determine exactly what they will do with the coins if it does go down in value.

Step 4: Sell the Cryptocurrency

Once you have determined how much of your crypto portfolio to sell and when, you can sell it. So, once the price of a cryptocurrency reaches your take profit or stop loss level, you should sell a portion of your crypto holding without being influenced by behavioral biases.

Hence, we can conclude that having a trading plan is prudent, as it allows you to keep your cool and avoid panic selling.

2. Focus on the Long-term Picture

Lately, we are in the midst of a cryptocurrency bear market. On November 10, 2021, Bitcoin, the world's first and most popular cryptocurrency, reached a new all-time high of more than $68,000. However, BTC could not maintain its lead for long and fell to trading in a range of $17,500 to $20,000 (June 2022), down more than 70% from its all-time high. With the decline in Bitcoin, the positively correlated altcoins followed suit.

If you are a long-term Hodler, this might not be a good time to liquidate all of your tokens. Actually, the bearish market usually presents good buying opportunities. Warren Buffet-the world's most famous billionaire used to buy cheap stocks with strong earnings and long-term growth potential. So, don't be alarmed, and keep an eye on the long term.

For months, many analysts have been saying that the crypto bear market is just getting started and will be over soon. Technically, Bitcoin is gaining solid support near the $17,500 level, and June’s closing above this could motivate crypto traders to go long. While there are analysts who expect a more significant downturn in BTC/USDT prices, a break below the $17,500 support zone could expose the Bitcoin price to $12,000. If you are hodling cryptocurrencies for short-term gains, short-selling Bitcoin could also be an excellent option to hedge against downside risks.

3. Make Use of Technical Indicators to Determine the Best Entry Price

When a bear market has been in place for a while, it can be difficult to find the right entry point, especially in such a volatile market. Using technical analysis to determine the best time to invest in a cryptocurrency is the most effective method.

There are many different types of indicators that can be used, some of which are more effective than others.

Relative Strength Index (RSI)

The Relative Strength Index (RSI) is the most widely used and well-known indicator. This indicator can be used as an entry point because it predicts when you should buy or sell your cryptocurrency.

The RSI is also used to determine the strength or weakness of security, and it can predict where the price will go in the near future. When the RSI falls below 30, it is clear that there is potential for profit. This point could potentially last for a long time and even result in a price increase.

Overbought RSI Indicator - Sell Signal

When the Relative Strength Index rises above 70, it indicates that the underlying asset's value is rising but could reverse or fall at any time. Take a look at the BTC/USDT on the KuCoin trading platform shown below. The RSI value rose above 70, prompting investors to enter the market and initiate a bearish trend.

KuCoin Trading Platform: Bitcoin Daily Chart : Source BTC/USDT

Oversold RSI Indicator - Buy Signal

On the flip side, if the RSI falls below 30, it indicates that the asset is decreasing in value and could reverse or move on the upside.

KuCoin Trading Platform: Bitcoin Daily Chart : Source BTC/USDT

Reading the RSI is not that difficult. That is why people choose this indicator first while starting to learn technical analysis. However, you must keep in mind that, like many other indicators, the RSI can also provide false alarms. Therefore, you must learn to recognize when the indicator is giving a good signal and providing a bad call.

Fibonacci Retracement

The Fibonacci Retracement is a well-known price level that investors frequently use to assess an asset's trend or the sentiment of the market. It is a set of numbers formed by subtracting one number from its previous value and dividing it by itself. The argument is that, historically, once a price level is reached, the next move will be back in the direction of the number.

The Fibonacci Retracement Level is calculated using a series of Fibonacci numbers: 0, 1, 2, 3, 5, 8, and 13. The numbers are discovered by adding consecutive numbers in a row to arrive at a new number. Fibonacci Retracement Levels are calculated using a series of Fibonacci numbers: 0, 1, 2, 3, 5, 8, and 13. The numbers are discovered by adding consecutive numbers in a row to arrive at a new number.

We won't go into detail about the Fibonacci formula, but we will focus on its practical application during the crypto bear market.

In a bearish trend, fear reaches its peak at the 0.618 level. Nervous short sellers exit their positions, resulting in a short-term pullback.

Bitcoin Daily Chart : Source BTC/USDT

Always wait for the price to hold above the 0.618 Fibonacci retracement level to confirm the bullish reversal. The same can be observed in the Bitcoin price chart above. Once the market completes the Fibonacci retracement and manages to move above these levels, there's a high probability of bullish reversals in the crypto bear market.

4. Buy Cryptocurrency on the Dip

For the past few months, the crypto markets have been in a bearish mode. Most cryptocurrency prices have been falling, and many people are selling their coins out of fear that they will never recover.

I'm not going to lie, I've also sold some of my coins because it's difficult to see your investment lose value. However, I am not going to sell all of my coins. Instead, I'll buy more dips because I believe the cryptocurrency market is here to stay and that this is just a blip on the radar.

When the market is in a slump, it is the best time to buy a cryptocurrency for the long term.

Many investors are employing this strategy at the moment because they believe that prices will recover at some point in the future. Even if you are not an investor, you may want to purchase a cryptocurrency now if you believe that prices will rise in the future. There's a school of thought that says if investors believe prices will recover, they're probably correct. Others may argue that people shouldn't invest based on this belief.

So, consider buying the dip in the crypto bear market but don't try to buy just because prices are low if you don't have the cash to spare, already have high exposure to crypto in your portfolio, or don't have time to research which cryptos to buy. Always take charge of risk management in your trading and investing journey.

5. Diversify your Cryptocurrency Portfolio.

In the preceding example, I only looked at buying Bitcoin, but the reality is that the more diverse your portfolio, the lower your risk during bear markets. Various cryptocurrencies will experience both larger and smaller drops. For instance, BTC and ETH have dropped by 70 and 80% respectively from December 2021 to June 2022 while LEO has risen modestly by 84% from $3.2 to $5.9.

In a nutshell, do not put all of your eggs in one crypto basket. There are over 18,000 cryptocurrencies to choose from; not all will be winners, but not all will be losers either.

Don't invest at random.

Use the following performance indicators:

Previous all-time high: This is not a guarantee that it will be repeated, but it can give you an idea of the potential.

Past performance: Past performance does not guarantee future performance, but it can provide a rough idea of potential in a bull market.

Roadmaps: After a major update, such as the launch of a mainnet, crypto-assets frequently see significant price increases.

Bottom Line

The value of the cryptocurrency market fell below $1 trillion on Monday (June 20, 2022) for the first time since January 2021, reaching as low as $926 billion. The global cryptocurrency market reached its peak at $2.9 trillion in November 2021 but has since slowed. It has lost $1 trillion in value in the last two months alone as investors fled riskier assets in the face of high inflation and concerns that central bank interest rate hikes will stifle growth. Many investors, both new and experienced, will be trapped in the crypto bear market, unable to exit without incurring significant losses.

The Fear and Greed Index indicates that sentiment is low, with the majority of respondents experiencing extreme fear about crypto market conditions. A crypto bear market is nothing new to seasoned investors. If you play your cards right, you can use a variety of strategies to get through it relatively unscathed.

In this update, we tried to uncover everything you need to know about a crypto bear market, such as frequently asked questions, whether we are in one, and crypto bear market strategies. I hope, the moves described above will assist you in waiting out and potentially profiting from a bear crypto market.

Bear markets serve as a good reminder to risk management, limiting the amount of risk we take. That means investing only with money you can afford to lose, so you're never forced to sell at a loss. It also helps to ensure that crypto-only accounts for a small portion of your investments. Having a diversified portfolio means that if one type of asset performs badly, it won't spell financial disaster. Follow the KuCoin Blog for more amazing content. All the best!