How to Survive a Crypto Bear Market
What is a Bear Market?
The bear market is typically when you hear that investors have lost tons of money and there is lots of fear in the space. Depending on what market you are monitoring the prices typically fall over 80% from their highs, eliminating gains and causing panic. If you found yourself in any one of these predicaments, fear not we will go over some essentials to navigate through the bear market. In this article, we will highlight ways that have helped me survive my first bear market and what others have shared with me.
Content:
Ways to Survive-
Background
Dollar Cost Average
Managing Risk
Think Long Term
Conclusion
Ways to Survive-
Background
Before we get into how one should navigate a bear market, especially in crypto, it is appropriate to give some background. I will list a few rules that should be noted when investing that are crucial to remember. (1) Never invest what you can’t afford to lose. (2) An investor should have cash flow first, likely from a job before trying to buy assets. (3) Long-term investors have the strongest chance of making the most money, so one should always have a long-term mindset. (4) When buying an asset it is important to research and understand your investment. (5) Have a plan on how you will invest. With these rules applied one has the proper foundation and mindset to ensure the best probability of success.
2. Dollar Cost Average
Dollar-cost averaging(DCA) is an investment strategy that divides up the total amount of dollars to be invested in an asset over certain periods. For example, John has $10,000 and buys $1,000 worth of Bitcoin every 4 weeks. Despite the price fluctuations, John will buy every four weeks. According to Forbes, “a third of the time, dollar cost averaging outperforms lump-sum investing.” Not only does dollar cost averaging have a higher chance of leading investors to being successful, but it will also help remove emotions when investing. Emotions are an integral part of why investors lose money. According to PRNewswire, “66% of investors regret impulsive or emotional investing…” Oftentimes, investors may undermine how emotions may get the best of them. Therefore, it's best to have a strategy like a dollar-cost averaging to remove the likelihood of a mishap.
Figure A
3. Managing Risk
There is a couple of ways to manage risk. Investors like Warren Buffet believe that you should diversify into many assets so that if one goes down, the others may go up to balance your portfolio. Meanwhile, investors like Mark Cuban believe concentration investing is better as it will lead to bigger gains on your portfolio. Mark Cuban’s strategy is technically riskier but yields more ROI if you are correct, unlike Warren Buffet's strategy which will give you less ROI but is less risky. Whichever way one decides to choose, one should understand both views and choose what they feel is best for their investment strategy.
4. Think Long Term
Having a long-term vision for investing will help investors get past the day-to-day fluctuations. According to Nutmeg “…investing for any one year would have generated a positive return 72.7% of the time while investing for ten years increased your chances to 94.15%.” As long as one researches their assets, and understands the technology they are invested in there should be no worry. It’s no secret that blockchains will disrupt the modern-day financial world. Not only will it disrupt, but it will revolutionize certain sectors of our economy. Payment is a big area where banks are inefficient, and blockchains fill that gap by being more efficient. That’s why it is important to focus on the longer term because the transition in technology will take time. That’s why there is a famous quote that goes “Time in the market beats timing the market.”
Conclusion
Bear markets should be seen as an opportunity to allow one to get good deals on assets. It is a time when one may* accumulate crypto at low prices to eventually sell higher. This is why we should embrace the bear markets and change our perspectives on them. With all of the ideas outlined in this article that involves strategy, risk management, dollar-cost averaging, and a long-term mindset one should be more successful. All of the ideas mentioned increase the probability of one's success. To close off, this article I want to state that past performances are not a reliable indicator of future performance so please take everything with a grain of salt. Thanks for reading.