Investing in Cryptocurrency: How to Survive a Bear Market
If you’re not familiar with the world of cryptocurrencies, here’s a brief overview: Cryptocurrencies are electronic assets that use encryption techniques to regulate the generation of units of currency and verify the transfer of funds. If that makes your head spin, don’t worry — you’re not alone! To many investors and enthusiasts alike, this technology can seem like just another passing fad (take cryptocurrencies’ previous rise in popularity and subsequent crash in 2018). Yet if you dive deeper into this phenomenon, there’s more to it than just the volatility of the price tag.
THE CURRENT STATE OF THE MARKET
As you’re likely well aware, cryptocurrency markets have been taking a beating for some time now. The value of bitcoin (BTC) alone has plunged from $68,900 USD last year all the way down to just under $30,000 today. If you’ve invested or are thinking about investing in crypto and found yourself watching your assets dwindle over time, it can be tough to stay motivated. But don’t give up! The best thing you can do is remain active, maintain an optimistic mindset, and look for ways that market changes can create opportunities for profit. And by create opportunities we mean invest when prices are low—not right after they hit rock bottom! It might seem counterintuitive, but if you hold out long enough, there will eventually be another bull run. Here’s how to survive a bear market while still making money in crypto.
INVEST FOR THE LONG TERM
Invest for long-term growth and never trade based on emotions. Many people in crypto who have lost their investment during short term swings or even panic, have begun investing once again when things seem better. The only way to thrive during bear markets is to adopt a long-term mindset and take a contrarian view. This means buying coins that have fallen tremendously from their all-time highs, knowing that these kind of dead coins can see incredibly impressive recoveries when buyers begin entering markets again as they start believing in values once more. People think FOMO (fear of missing out) will make them miss large amounts of gains because they always want fast returns but fear holding on too long will result in them missing out on future gains.
PRICE FLUCTUATIONS ARE NORMAL
If you have invested more than you can afford to lose, then taking a step back and trading carefully is your best course of action. No one likes losing money, but it’s part of investing. It’s never fun to see investments drop by half or even more over night. The truth is that there are ups and downs in markets, and what goes up will come down; however, cryptocurrencies may see price fluctuations 10-100x greater than traditional assets due to their inherent volatility. If you understand what you are buying into (and how much risk that entails), then stick with your plan — even if it means holding on for dear life during some market dips!
Remember, we’re still in an early stage of cryptocurrency adoption. We don’t know where prices will go long term, but at least they aren’t zero! Be sure to keep a close eye on your portfolio and consider adding stop losses so you don’t find yourself selling when things look bleakest. Keep Calm & Hold On: Don’t panic sell or freak out!
DIVERSIFY YOUR INVESTMENTS
One way of avoiding losses during a bear market is by diversifying your portfolio. If you’re trying to make money on cryptocurrency, there are more ways than just holding coins. Investing in cryptocurrency can be very profitable; however, it’s vital that you know exactly what you’re getting into before spending any money. There are plenty of scams out there and all it takes is one bad investment decision for your life savings to evaporate. Think long-term when investing; while short-term swings happen, they shouldn’t impact your decisions.
One method of diversification is spreading your investment across different cryptocurrencies. One way to do that is by using portfolio management tools. For example, if you owned Bitcoin (BTC), you could purchase Dogecoin (DOGE) with some of your BTC profits, then sell DOGE for BTC when it’s profitable. You can also trade other cryptocurrencies on exchanges like Binance and Bittrex, depending on which coins are most profitable at that time. This can help reduce risk as well as improve gains from investments over time.
KEEP YOUR EMOTIONS IN CHECK
HODL is an internal cryptocurrency term, stemming from a drunken bitcoin forum post that has since evolved into its own philosophy. The idea is simple: hold your coins, don’t sell them at any price unless you’re facing financial ruin. Ignore what people say about individual coins and their futures—the crypto market, as people often call it, moves as one, so if Bitcoin tanks today that’s not a sign you should go all-in on Ethereum. It’s just as likely that Ethereum is tanking for unrelated reasons and tomorrow Bitcoin will rise accordingly. In other words, there are no isolated events; everything affects everything else.
We might already be living through a cryptocurrency bear market, or we might see one soon. Governments could pass new laws that prohibit exchanges and some countries, such as China, could completely ban cryptocurrencies. If you decide to invest in cryptocurrency now—and I’m not saying you should—then don’t invest more than you can afford to lose, because it’s possible that things will keep getting worse before they get better. In other words, invest your money wisely and make sure that you only risk as much of it as your are comfortable losing. That way when (not if) things go south you’ll still have plenty left over to enjoy yourself. Remember HODL!
HODL on for dear life
One of the most important lessons to learn when investing is that while price will inevitably fluctuate, it pays to be as patient as possible. You’re unlikely to get rich overnight with cryptocurrency investments, but if you can hold out through some of those market dips, you may find yourself sitting on top of something valuable one day. The old adage holds true here – buy low and sell high. As with any speculative purchase, try not to go overboard and invest more than you can comfortably afford just in case prices dip further. If your patience wears thin then it may be worth taking some profits off the table and re-evaluating your investment strategy.