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A Bear Market - Consequences for Crypto Holders and How to Benefit from It

James King -

The crypto world is experiencing a bear market, and cryptocurrency holders are having a hard time. Most digital coins and tokens have significantly lost value in the last months, leaving many investors speechless and deeply worried. How can you “survive” a bear market? Or, being even more optimistic, can you benefit from it? Let us discuss it here.

Firstly, a bear market occurs when the asset prices in the market drop by 20% or more for at least two months. To many, investing in a bear market is not a good idea. Many regard a bear market as an excellent time to lose money. No wonder many investors have rushed to sell their crypto holdings, only contributing to extending the severity and duration of the current bear market.

Surviving a Bear Market

So, let us discuss first what you must do to endure the current bear market and avoid catastrophic consequences for your finances.

Do Not Panic

When the prices of the cryptocurrencies you hold plummet, you might feel the urge to cash out. It is understandable. Most investors rush to sell their crypto holdings when they lose confidence. But by selling your holdings at a lower price than you bought, you turn an on-paper market downturn into an actual loss of money. Moreover, you contribute to pushing the cryptocurrency price even lower, making the bear market worse.

Experienced financial advisors recommend staying in the market when prices drop.  A bear market is not eternal, and investors who manage to ride out the storm will receive gains when the market eventually recovers. Staying in the market will also allow you to identify profit opportunities arising when the downtrend reverts.

Diversify Your Investment

In a bear market, some individual coins will disappear, and others will survive. Hence, you must diversify your crypto investment portfolio to minimize losses and increase the chances of having gains when the market recovers. The crypto market offers different assets you should consider including in your portfolio. These are:

LetsExchange.io can help you diversify your investment portfolio quickly and easily. Our instant exchange supports more than 720 digital coins and tokens. You can swap cryptocurrencies at competitive rates without mandatory registration on our platform.

Invest Cautiously

Do not use the money you need to cover your living expenses for crypto investments. For instance, if you rely on short-term crypto profits to pay your house mortgage, you will be in trouble during a bear market. Financial advisors recommend adjusting your lifestyle to match your regular income. Allocate some money to establish a saving account containing at least three months of living expenses to keep you solvent in hard times. Once you have all these priorities covered, you can use some money to invest in the crypto market. Remember, you should invest only money you can afford to lose.

Be Patient

According to academic research in finance, a bull market lasts about six years. A bull market is characterized by the rising prices of the assets in the market. On average, investors can expect a cumulative return of at least 200% at the end of a bull market. In contrast, a bear market usually lasts 18 months or less, and losses average 39%. Hence, if you can hold your crypto assets for at least five years, you need to take no action during a bear market. Eventually, the market will recover, and you will resume earning profits.

Benefiting from a Bear Market

Surviving a bear market is one thing, but benefiting from it? Is it possible to take advantage of the low cryptocurrency prices to make profits? Although it might sound over-optimistic, the answer is yes, and you can benefit from a bear market. Let us discuss some strategies you can use for this purpose.

Buy the Dip

Buying the dip is one of the most popular strategies crypto investors use to make profits when cryptocurrency prices plummet. The rationale is that a price decline (also known as a dip) is temporary, allowing you to buy crypto at bargain prices. Investors hope to profit when the cryptocurrency price rebounds in a bull market. The current bear market is an excellent opportunity to buy the dips of various cryptocurrencies. However, keep in mind there is no assurance that an individual cryptocurrency price will return to its previous levels.

Dollar-Cost Averaging

Dollar-cost averaging (DCA) is an effective strategy to weather a bear market. It consists of making small regular crypto purchases weekly or monthly. This way, you can continue building your investment portfolio without committing to a single large purchase that could suddenly become an enormous loss. This strategy smoothes out price volatility, reducing the average cost of your investment in the long run. You do not have to worry about timing the market or predicting price moves if you use DCA. When the market recovers, your holding will increase its value, and you will make a profit.

Lending and Staking

Even if the price of your cryptocurrencies drops during a bear market, they still can yield financial benefits. For example, you can earn fees from lending coins to a liquidity pool. Alternatively, you can stake them to a blockchain using the proof-of-stake (PoS) consensus mechanism. Many cryptocurrencies associated with blockchain technologies can deliver financial rewards in other ways beyond merely price moves.

Conclusion

Although many investors fear bear markets, such events can give exceptional profit opportunities. The strategies discussed in this article can help reduce losses during a bear market. Moreover, some strategies will allow you to continue ripping financial rewards even if cryptocurrency prices are plunging. Identify sectors of the market where cryptocurrencies retain their value in a bear market. For example, digital coins used in gaming and gambling industries tend to do better when other cryptocurrencies' prices plummet. Plan your response to a bear market, and you will realize that you can endure and even benefit from a bear market like the current one.

Disclaimer

Please keep in mind that the above information is based exclusively on our observations and is provided for informational purposes only. It doesn’t constitute any kind of financial advice nor represents an official forecast. Cryptocurrency is a highly volatile asset, and you are investing in it at your own risk.

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