There are a few things that strike fear in the minds of crypto investors in South Africa, which include price volatility and the uncertainty of making a profit. However, one of the most dreaded periods in this industry is the bear market since this is when cryptocurrencies’ prices drop.
However, what if we told you there are still ways to generate profit during this feared market phase? To guide you through this tough time, we’ve provided some strategies to incorporate into your trading journey. Here’s everything you need to know:
What is a bear market in crypto?
The crypto bear market pertains to the period when the prices of cryptocurrencies are dropping, which causes supply to be greater than demand. More specifically, it’s when their prices drop at least 20% or more when compared to their previous high.
Supply and demand also play a huge role in this market trend. The former is greater than the latter during this period which is one of the reasons for these assets’ low prices. If it were the other way around and the demand is greater than the supply, the prices of these assets will rise, which could then lead to a bullish market trend.
What happens in a bear market crypto?
Digital currencies like Bitcoin, Ethereum and other altcoins during a bear market significantly have lower prices compared to their recent highs.
Aside from that, you’ll also notice a couple of things happening during this dreaded time. For starters, you’ll start noticing fewer media coverage surrounding these digital assets and their current valuation. If there are articles that talk about cryptocurrencies during this time, chances are they’ll be headlined with something negative.
Moreover, since this period is a difficult phase, especially for beginner traders, you’ll also notice that fewer assets will be traded. There will be a noticeable drop in the rate of trading activities since this period makes it difficult to do so.
What causes bear market crypto?
Just like with stock market trends, the crypto market can be influenced by various reasons that can alter its trajectory. That’s why you can’t pinpoint a single cause of a bearish crypto market. Throughout cryptocurrency’s history, here are some of the reasons that caused the prices of these digital assets to fall:
Lack of liquidity
One thing that all tradable assets have in common such as stocks, cryptocurrencies and bonds, is that they all have liquidity. This is an important factor for these assets as it decreases volatility, thus making their prices much more stable.
When the market lacks deficiency, its assets will have unexpected price spikes, which could lead to a bearish market.
A wise investor would only invest their money somewhere safe. That’s why people panic when security breaches occur on a specific network or cryptocurrency and pull out their funds as quickly as possible.
When this happens, it results in a significant drop in the price, which could make the market bearish.
Statements and thoughts from crypto influencers
Since cryptocurrencies have become more popular, various personalities have been ‘elected’ as influential figures in the industry. These so-called influencers can share their sentiments online and affect the purchasing decisions of crypto investors.
One prime example of an influential figure affecting the trajectory of a certain cryptocurrency’s price is Elon Musk’s stint with the Shiba Inu coin. Some other famous cryptocurrency personalities include the founder of Ethereum, Vitalik Buterin, Binance CEO Changpeng Zhao and more.
One thing you should know about cryptocurrencies is that their established regulations are inconsistent. This means that some digital assets might be available to trade in a specific country, but they can be banned at any time by their government. What if that country has the majority of a certain token’s investors? This will cause a ripple effect of users pulling out their funds, leading to a bearish market.
How long does the crypto bear market last?
Throughout the history of cryptocurrencies, bear markets have recorded an average period of one year or so. Moreover, this dreaded phase is a natural part of the market cycle.
How to profit in a bear market
As a wise crypto investor, your main goal is to earn money from trading. Since the bear market is feared by many, they believe it leaves little to no leverage for generating income when making a trade. .
Although there are some truths to this claim, there are other ways to make money during this market phase through various crypto bear market strategies. By incorporating these techniques properly, you’ll see capital gains come your way. Check out these strategies below:
- Buy the Dip
One of the most common and logical strategies to use during a bearish market is buying the dip, partly because it’s been used by investors for the longest time in traditional markets.
This strategy plays with the idea of price volatility by taking advantage of the low price of the assets during this market phase and knowing that they’ll recover in the future. By buying the dip, you’ll be guaranteed a return on your investment when the asset eventually goes back to its original price or, even better, reaches a new high.
This strategy is often compared to dollar-cost averaging (DCA). Unlike buying the dip, however, dollar-cost averaging is solely focused on small and equal purchases consistently instead of making big purchases during irregularities in the market.
Another strategy investors have used in traditional markets is short-selling, which follows the idea of ‘sell first, buy later’. With this strategy, you’re predicting that the price of a certain asset will drop.
This works by borrowing shares which you’ll then sell in the market. If your prediction is right, you’ll buy the shares back and return them to the lender to gain profit.
This strategy is similar to margin trading and futures trading where you have to borrow funds you’ll need to pay back later.
- Crypto savings and lending
When the market becomes bearish, you can save your cryptocurrencies in your account and wait for the right moment to start trading again. This is something that crypto investors tend to forget as they automatically feel the need to sell all of their assets, also known as ‘panic selling’.
Panic selling is caused by seeing your assets’ prices drop and the notion that the situation will get worse as time goes by. However, you should know that this is one of the worst decisions you can make during a bearish market, as it leaves no room for profits.
When you sell your assets for lower than the price you originally bought them for, you won’t only restrict yourself from profit but also lose money.
Alternatively, you can lend them to gain interest in the long run. That’s why cryptocurrencies are considered great investments since lending them can help you earn passive income through interest.
- Crypto staking
Staking your crypto is a great and foolproof way to earn profits during the bear market. If you want to guarantee returns, this is a great place to start if you’re just beginning to navigate the bearish market.
In this strategy, you’ll be staking or locking up your cryptocurrencies on a blockchain network that uses a proof-of-stake. This consensus mechanism plays a huge role in this strategy as it’s the main way you’ll earn cryptocurrency during this feared market duration.
Here, you have to stake cryptocurrencies to be chosen as a validator. After successfully validating a transaction, you are rewarded with a set amount of cryptocurrencies regardless of whether the market is bearish. Think of the rewarded cryptocurrencies as dividends that the network pays you. However, staking can be rewarded daily as long as a transaction is validated.
However, remember that this consensus mechanism chooses its validators based on the amount staked on the blockchain network. The higher your stake is, the more likely you are to become a validator.
- Yield farming or liquidity mining
Just like crypto staking, yield farming or liquidity requires you to lock up your funds. This time, however, you’ll be generating profits through interest instead of gaining cryptocurrencies by validating crypto transactions.
This works by locking up your cryptocurrencies in different liquidity pools through decentralised finance platforms. Think of it as lending money in the bank, rewarding you with interest. This interest is based on the number of cryptocurrencies you staked and how in demand the coin is.
- Scalp trading
A short-term strategy you can use during a bear market is scalp trading. This technique focuses on generating small gains by placing bulk orders or multiple trades in a short period.
Grid scalping seeks to take advantage of a price’s volatility. Setting these orders in predetermined intervals allows traders to profit when the price improves.
Since you need to make fast trades with this strategy, what better way to execute this than bots? With these useful programs, you can make the trading process faster, which can be handy for making small profits through yields.
Additionally, this automation allows you to skip the heavy lifting, such as portfolio management, which will save you the time and effort of manually doing them. They also make sure that your trading experience is free from any kind of human error.
This sounds promising, but you still have to have ample knowledge of how crypto trading works since you’ll be the one to set the parameters of these crypto trading bots.
Don’t fear the crypto bear market!
Contrary to what most people believe today, the crypto bear market is nothing to be afraid of! Instead, it’s an excellent opportunity to earn income through various ways such as generating yields, mining liquidity, staking cryptocurrencies, etc.
Get rid of your crypto trading fears! If you’re in this industry for the long run, you’ll see this so-called ‘dreaded’ market trend as an opportunity to diversify your portfolio. Plus, by better understanding what bear markets are and how they work, you can remain calm and collected during these trying times and look for ways you can still earn money.
What to do in the crypto bear market?
During a bear market, you can do various things to generate profit and protect your investments, such as:
- Buying the dip
- Diversifying your portfolio
- Yield Farming
- Crypto Staking
- Crypto Savings and Lending
- Scalp Trading
- Liquidity Mining.
What crypto to buy in a bear market?
When choosing which coins to buy during a bear market, you must focus on the ones that provide true value. These coins can survive no matter how gruelling the bear market will be.
Moreover, you need to buy cryptocurrencies that can provide good purchasing opportunities in the long run. Here are some of the best cryptocurrencies to buy during this bear market:
Is it good to buy in bear crypto market?
As challenging as the bear market is, it’s the best time to purchase cryptocurrencies only if you’re willing to hold them throughout a multi-year timeline. It also depends on which cryptocurrencies you’ll buy during this market phase.
Which strategy is best for crypto bear market?
As much as possible, you’d want guaranteed returns in the crypto bear market over time. An option where you can earn income passively is also welcome. Yield farming and crypto staking are two of the best strategies to use during a crypto bear market.
How long did the last crypto bear market last?
The last crypto bear market occurred in the Spring of 2022, and it’s projected to recover during the second half of 2023.
Is crypto in a bear market?
At the time of writing, the crypto market is currently bearish and experts predict that it will end in 2023.