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The key strategies to deploy in a crypto bear market

Updated: Nov 11, 2022

What traders and investors should do in a crypto bear market, and how to survive in it.


Key Takeaways

  • Investors should invest in cryptocurrencies that perform different functions and are not highly correlated with one another.

  • The optimum moment to generate money is during a market downturn or a bear market.

  • A bear market presents opportunities for investors to buy low and sell high by buying the dip.

  • Preserving the blue-chip coins like Bitcoin may guarantee a quick rebound.

In a bullish market, anybody may profit simply by picking a coin and waiting for its price to rise. However, some pro traders have got luckier and made more significant returns by investing in the year's biggest movers, such as alternative Layer 1's, metaverses, NFTs, or meme coins.

Experts have predicted that Bitcoin's value will be much greater after this cycle, with many making extremely bullish price predictions for where they believe it will be. From low-end forecasts of $100k to considerably optimistic ones of a possible $500k. But what if prices don't meet those milestones? What happens if the market takes a nosedive, triggering the next bear market?

In crypto, a bearish market is a market where prices are falling. In bear markets, it's essential to have strategies to deploy to minimize risks and protect one’s crypto investments.

Strategies for managing crypto bear market

Strategies to manage crypto bear market

1. HODL crypto

The optimum moment to generate money is during a market downturn or a bear market. Buying low, then selling high, is a long-term approach that needs perseverance, like buying the dips. Studying coins that have been hit the hardest in corrections or bear markets and are still severely undervalued is essential. This step necessitates independent research, understanding the market, and which cryptocurrencies will most likely recover.

By selling crypto and buying back at lower prices, one may be losing money unnecessarily. This is because there is no certainty that crypto prices will go up again, so preferring HODL crypto in a bearish market is a good strategy. Having knowledge of the project's key fundamentals and its projected future in the crypto industry is an important skill to possess here.

2) Limit your losses

Limit losses by placing Stop-Losses, which means that you sell crypto when the price falls to a particular level that you're comfortable with. You can also use a stop loss if it's difficult for you to watch crypto prices all day long and wait for crypto prices to go up again.

3) Diversify crypto portfolio

It is recommended to invest in crypto that performs different functions and are not highly correlated with one another, so crypto investing becomes more stable even if one crypto fails. Furthermore, to diversify your crypto portfolio, you can make investments in coins/tokens of different companies operating in crypto or crypto companies that are crypto mining, trading, crypto investing etc.

4) Preserve the blue-chip cryptocurrencies

History has shown that blue-chip cryptocurrencies like Bitcoin outperform altcoins in the market. For instance, during the 2018 crypto crash, Bitcoin dropped from $20K to $4K. However, Bitcoin outperformed most altcoins, with its value plummeting by up to 99% from its all-time high price. Its recovery was also quick and reached its ATH in 2021, while most altcoins still struggled in the red, and some failed. Thus, bear markets don't assure that the coins will ultimately recover, so one should create their portfolios strategically.

5) Invest in Stablecoins

If the market is set to plummet further, there are several lucrative options like shorting and selling in stablecoins. When the crypto market is plummeting, the fiat value of these coins remains constant. There are numerous ways to profit from stablecoins by lending or DeFi, which traders keep. When the cryptocurrency has hit its lowest price, traders can exchange it back into their preferred coins to end up with more crypto in their portfolio without additional funds.

6) Buy the dip

One of the best crypto trading strategies is to buy crypto when prices are low and sell crypto when prices are high. This crypto investing strategy is simple but highly profitable, especially if crypto prices suddenly fall. To use this crypto trading strategy, first assess the crypto industry's trend by studying historical charts or other indicators for support or resistance levels that could signal that an uptrend or downtrend may soon begin so you would know what level to place your Stop-Losses at. Then set up a price alert on your preferred cryptocurrency chart so you will be notified via email or text message once the desired price has been hit. Knowing beforehand which cryptocurrencies are likely to pump enables one to buy crypto before prices rise.

Another crypto investing strategy is dollar-cost average investing. One invests a fixed amount of money in crypto every week regardless of whether crypto prices are high or low. This crypto investing strategy allows you to take advantage of fluctuations in crypto prices by buying when the price falls.

7) Shorting Techniques

Shorting crypto can be challenging, but it's an excellent crypto investing strategy if you're sure that crypto prices will drop. To do this, you would need to borrow crypto at the current price and then sell them in the market. Then, when crypto prices hit their lowest point, you would buy back crypto to repay your debt minus interest fees (in the case of the loan), which the difference will be your earned profit.

Short selling crypto is not recommended for beginners as it requires experience before one can understand crypto technical analysis tools to determine whether crypto prices are likely to increase or decrease.

Is Crypto Entering the Bear Market?

No one knows for sure if the current decline in cryptocurrency is a temporary correction or prolonged downturn that will bring crypto prices to zero.

How to survive the crypto bear market?

  • Protect crypto from the bearish market – Crypto bear market is scary. It is important to protect your crypto investments from bearish crypto trends by investing in less volatile assets or having a lower percentage of risk, such as fiat currency and traditional assets like real estate and stocks.

  • Stay calm and stick to the plan It's imperative to stay calm during a bearish market because panicking increases the chance of making mistakes and losing money unnecessarily. So if you're not confident about crypto prices going up again, then HODL crypto during a bearish market without increasing your position (meaning you'll do nothing).

  • Stop losses in the bearish crypto market It is recommended to place stop losses below the crypto price that you can accept, this limits the losses or protect the gains by selling crypto at a higher value if crypto prices drop further.

  • Diversify portfolio in a bearish market Diversification helps crypto investors reduce risk and decrease volatility because each cryptos have different functions and may not correlate with one another. For example, you can invest in coins/tokens of varying blockchain companies operating in crypto or crypto companies involved in mining, trading, investing, etc.

Leverage the bear market

A bear market creates the ideal time to accumulate wealth. Most significant gains are realized through investors’ efforts when the market is quiet, and no one is paying attention. Traders may gain entry to cryptocurrency early and profit from its benefits by putting in the effort now to understand crypto and its next significant movement. The major issue right now isn't how much one's crypto portfolio is worth or how many coins one has; it's about what they're doing to strengthen their position and improve their abilities in this area. This will make all the difference.

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