Bear Market Investment Guide (Part 1): Survive & Prepare for the Future
Bear markets are inevitable, but difficult to anticipate. We also don’t know how long they will last, or how severely they will affect asset prices. After a market undergoes a massive bull run, it’s only natural that it will enter a bear market eventually.
As the saying goes, what goes up must come down.
For instance, on the 27th of August 2021, Cardano’s price reached its all-time high of $2.85 before it crashed down below $0.46 recently.
It’s difficult to predict the future with 100% accuracy. However, by positioning yourself appropriately, you can not only survive a bear market but also benefit from it.
While most investors are scared of a bear market, some savvy investors cheer the arrival of a bear market by using some smart strategies to get defensive, limit their losses, and reposition themselves to benefit over the long run.
In this article, we will discuss some strategies you can use to reduce portfolio losses and even make some money off the bear market. This article is the first of our Bear Market Series at ADAX as we educate our community about trading and investing in cryptocurrencies.
Buy Low To Sell High
When an asset enters a bear market, its price drops and stays lower for some time. If you see long-term value in that asset, that means a bear market presents you with a buying opportunity (aka discount).
For example, Bitcoin hit an all-time-high of roughly $69,000 in November 2021, but dipped below $30,000 by the end of May 2022. If you think the price of Bitcoin will rise over the long term, then it makes sense to try to buy more when the price is around $30,000 (a 50%+ discount from all-time-highs).
Or, think back to the last bear market, when Bitcoin crashed to $3,600 as the COVID-19 pandemic hit. Buying at the bottom there would’ve proved immensely profitable.
Now, buying low and selling high isn’t a fail-proof strategy as crypto has seen its fair share of projects collapse. The spectacular fall of Terra Luna is proof that buying low won’t necessarily work. Sometimes, what goes down doesn’t come back up.
Regardless, buying during a bear market can potentially be a good approach if you have cash on hand. A lot of cryptos like Bitcoin and Ethereum have proven resilient throughout cycles. Therefore, buying the dip or buying low could maybe yield you higher returns over the long term.
- To ensure seamless trading during this bear market, without the potential for censorship or freezing of accounts, use ADAX to facilitate trades within the Cardano ecosystem in a completely decentralized and non-custodial way.
Earn Profit With DCA
Dollar-cost averaging (DCA) eliminates the risk you might face if the market price unexpectedly drops further when you buy during a bearish market. By using the DCA strategy, rather than investing in an asset at once at a single buy price, you spread the amount of money to invest and buy small quantities over a period of time at regular intervals.
Since you spread out your purchases, DCA remains potentially the best strategy for limiting losses and managing your portfolio. That’s because you don’t have to time the market, which can be disastrous if you buy on the wrong date. Think if you had put everything into Luna before the recent crash!
The power of DCA can be seen in countless examples.
For instance, if you had been investing $10 daily on Cardano since the 7th of September, 2018, when the market was $0.07, your total investment would be $13,590. And by the 27th of May, 2022, your total investment would have been worth $74,717.98 (154743.030253 ADA). That’s a total return of +449.80%, according to information generated from DCA-CC.
Research Assets that Increase in Price in Bear Markets (or Don’t Decline as Much)
Researching the history of past bear markets to find value and resilient assets is a potentially lucrative strategy. This research will allow you to see which assets actually went up or at least stayed at a certain range when other assets were tanking.
For instance, cryptos like Ethereum and Bitcoin usually do well in this situation. Or at least, they don’t crash as hard as alt coins do. Do your research to understand which coins do well in a tough bear market.
In this most recent bear market, certain coins have held up better than others, such as Monero, Stellar and Tron (which actually rose 30% in May). By investing in these coins that are holding up well, or even increasing in price, you can perhaps earn profits in a bear market.
HODL & Trade During a Bear Market
It’s difficult to know when a bear market will happen. However, holding the assets you bought during the bearish season till the bulls run can maybe bring you more profits.
For example, the price of Ethereum was $50 on the 24th of March, 2017. Imagine holding your coins till ETH hit an all-time high on the 12th of November, 2021 — when the price hit $4,644. That could have delivered you massive profits.
Even Bitcoin with its remarkable history has proven that holding during a bear market to sell in the bull run is lucrative. It’s arguably the best solution to survive in a bear market while preparing for the future!
Mining and Staking
By mining and staking, you can possibly endure the bear market and come out ready to profit. Mining is not for everyone because the whole process requires expensive hardware as well as a lot of electricity. But compared to staking, it’s worth considering if you don’t have a huge amount to invest in staking tokens.
Staking crypto is a good alternative as it enables you to earn more of that token. While the price action of that token may prevent you from actually earning positive returns, you’ll have the potential for more upside if the token you’re staking begins to increase in price again.
For instance, Ethereum 2.0 staking gives an annual revenue of 2% to 20% of the value of your Ether stake. You get more ETH, which could mean more positive upside once a bull market begins.
Don’t Rush To Invest
During a bear market, it’s important to resist investing in a hurry. Take a break from the market, study it, and implement a positive strategy to optimize your portfolio and survive the drastic effects of bear markets.
Inexperienced traders always have a hard time benefiting from bear markets because they are often too greedy. During the bearish period, the best idea would be to take a break to analyze the markets and prepare yourself for future investments.
Don’t Fret! Embrace the Bear Market
It’s not possible to predict the future with 100% accuracy, especially in a bear market. However, you can make plans to turn the tides around by implementing positive strategies, which include using the ADAX automated liquidity protocol to maintain full control of your tokens.
Are you wondering what to do? Try ADAX — and we’ll get through the bear market together.
ADAX is an automated liquidity protocol that facilitates trades within the Cardano ecosystem in a completely decentralized and non-custodial way. ADAX has no order book — to eliminate all intermediaries, complexity, and cumbersome procedures from the equation, offering users untrammeled freedom to trade without censorship or loss of control over their assets.
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*Disclaimer: The material provided in this article should be used for informational and educational purposes only. It is NOT intended as financial advice. Do your own research and consult with a financial advisor before making any investment decisions.