Crypto Bear Market; When to buy and when to sell.
“Bear market” conjures up images of doom and gloom in many investors. The downturns in the market, however, are unavoidable and, in comparison to the length of bull markets, are frequently very short.
Even in times of market decline, investors can find themselves in a position to benefit from good investment opportunities.
What a bear market is, and how you may protect your investments until the bear converts into a bull, are explained in this article.
Bear markets: When the value of an investment drops by at least 20%.
For a market to be considered bearish, prices of investments must have fallen by at least 20% from their most recent high. In addition to a bear market for the entire crypto market, bear markets can occur for individual cryptos as well.
While a 20% decline is considered a bear market, it is common for markets to fall considerably worse than that over time, rather than all at once. Despite occasional “relief rallies,” the market’s long-term downward tendency is still clearly evident.
Investors eventually begin to identify cryptos that are reasonably priced and start purchasing, thus ending the downturn.
Investors’ pessimism and lack of confidence characterize bear markets. A bear market is a time when investors tend to disregard any positive news and continue selling, resulting in a steeper decline in prices for everyone.
The market as a whole may not be affected by pessimistic investor sentiment on a particular crypto. Cryptocurrencies fall together when the market becomes bearish, even though each one is reporting positive news and expanding earnings.
What to do if the crypto market goes into a freefall (correction)?
What causes a bear market, and how long do bear markets last?
A market correction generally precedes or follows the onset of a recession.
The primary economic indicators that investors use to determine when the economy is slowing are hiring, wage growth, inflation, and interest rates. Some of the signs were different in the case of the COVID-19 pandemic than in the others, however.
Several indicators pointed to an impending downturn in the economy, including an increase in layoffs and social isolation.
Investors expect a drop in business profits while the economy is weakening. This causes the market to fall since they are selling their financial assets. A bear market might indicate a rise in unemployment and a worsening of the economy.
On average, bear markets last 363 days, and bull markets last 1,742 days. According to data provided by Invesco, they also tend to be less statistically severe, with average losses of 33% compared to bull market average profits of 159%.
In a bear market, how do you invest?
1. Become friends with dollar-cost averaging.
Assume that the price of a crypto in your portfolio drops by 25%, from $100 to $75 per token. When the crypto price appears to have plummeted, it can be tempting to try to acquire more if you have the funds to do so.
The problem is that you’re probably going to be incorrect. In fact, that crypto could fall by as much as 50 percent or more from its recent high. This is why trying to “time” the market or “select the bottom” is so dangerous.
Dollar-cost averaging is a more cautious approach that involves adding money to the market on a regular basis. You can reap the benefits of dollar-cost averaging by reinvesting the same amount of money over and over again.
As a result, you’re less likely to invest all of your capital at once when a crypto’s value is at an all-time high (while still taking advantage of market dips).
Although bear markets might be frightening, the crypto market has shown that it will recover. Bear markets can be opportune times to buy cryptos at reduced prices if you change your viewpoint and concentrate on prospective gains rather than losses.
2. Invest in a variety of different assets.
Purchasing cryptos at reduced prices is one way to increase your portfolio’s diversification, whether or not the market is in a bear market.
All cryptocurrencies tend to experience declines during bear markets, but these declines are not always of equal magnitude.
Because of this, a well-balanced portfolio is essential. The overall losses in your portfolio can be reduced if you have a mix of assets in your portfolio.
Due to the fact that bear markets generally precede or coincide with economic recessions, investors often choose assets that provide a more stable return during these times, regardless of what is happening in the economy.
3. Invest in sectors that perform well during recessions.
If you’re looking to add some stability to your portfolio, look to industries that do well in downturns. In a bad market, consumer staples and utilities tend to fare better than other assets.
Index funds and exchange-traded funds, which track a market benchmark, allow you to invest in certain industries. Investing in a consumer staples exchange-traded fund, for example, will expose you to companies in that sector, which are more stable during economic downturns.
Investing in an index fund or ETF provides greater diversification than investing in a single stock.
4. Keep an eye on the long haul.
All investors are put to the test in bear markets. History suggests that you won’t have to wait too long for the market to rebound from these periods. As for long-term investing, bear markets will be overwhelmed by bull markets if your goal is to build wealth for the long term.
For short-term goals, such as those that take fewer than five years to attain, the crypto market may not be the best place to put your money.
In spite of this, it’s a good idea to avoid the desire to sell off your assets when the market declines. A good financial advisor can manage your money for you in both good times and bad, should you find it difficult to keep your hands off them during a down market.
How can you tell if a bear market is imminent?
In hindsight, bear markets appear to be apparent, but then, Identifying when a bull market has begun or if a very moderate downturn will turn into a full-blown bear is not an easy task.
Disclaimer: Bitxmi News is a news portal and does not provide any financial advice. Bitxmi's role is to inform the cryptocurrency and blockchain community about what's going on in this space. Please do your own due diligence before making any investment. Bitxmi News won't be responsible for any loss of funds.