The past several months have been less than kind to financial markets, with crypto taking the brunt of the abuse. Last month, we witnessed Bitcoin’s most significant price drop in 11 years (-37.3%), with virtually all altcoins following suit. It was the result of institutional and retail investors pulling their capital out of the market due to troubling macro factors, DeFi protocol and exchange collapses, and rising interest rates — a consequence of soaring global inflation.
It’s easy to see why many users have exited the crypto space with so much present volatility. However, the road to the euphoric bull market does exist for those inclined to see this bear market through to greener pastures. But there are two paths that both lead to the same destination. One is chock-full of costly mistakes that leave investors with little capital to work with when the market picks up again. The second is a more cautious route that requires patience and better judgment; this is the path we will detail in this article.
Here are seven ways to minimize risk and successfully navigate the crypto bear market to ensure you’re prepared for when the bulls eventually take over.
Don’t Panic, We’ve Been Here Before
Though not all bear markets are created equally, crypto has been through a devastating bear market before. Depending on how you analyze a chart, you could argue that crypto has been through two or three more besides the one we’re in now. While the circumstances that brought about each crypto winter differed, they all had one thing in common: The fudders grew louder, and the believers either stopped believing and left the space or, more rightly, put their heads down, blocked out the noise, and started doing their due diligence.
In that regard, this bear market is no different. Twitter is full of “financial experts” that will tell you that Bitcoin and the crypto market, in general, are going to zero. Ignore the naysayers and focus on what matters, positioning yourself perfectly to maximize profits on the next bull run, and this brings us to our next point.
Keep Your Assets Off Centralized Exchanges
If the Celsius debacle has taught us anything, it’s that you relinquish custody of your assets when keeping your money on a centralized exchange. This bear market has brought about an insolvency crisis among centralized exchanges and lending protocols (3AC, Vauld), and it’s safe to assume that we haven’t seen the last of these dreadful events.
The solution? Keep a non-custodial wallet or cold wallet to store your funds long-term, and if trading, use reputable decentralized exchanges wherever possible.
You’ve probably seen the hashtag #DYOR plastered on crypto Twitter posts from influencers promoting memecoins, NFTs, or DeFi projects. DYOR stands for Do Your Own Research, a disclaimer for anyone suggesting users take a chance on a degen token or new NFT collection.
And while it is essential for all investors to do their own research on any given token or project, we would take it a step further to modify that acronym to DYOTR — Do Your Own Thorough Research. We want to make it abundantly clear that simply skimming across a project’s social channels isn’t enough to know if its fundamentals are sound. Novices often make this common mistake when investing and in doing so, almost guarantee a loss of funds. A thriving Telegram community is without question a positive sign, but projects with such communities have been known to rug pull in the past.
As someone investing during a bear market, you must analyze data such as all-time high vs. current price, use-cases, level of decentralization, whether or not the team is doxed, and their qualifications. As previously mentioned, social channels are essential, but there is more to look for than just a hyped Telegram or Discord. Does the team make a consistent effort to communicate with users and deliver on their roadmap?
Keep an eye out for projects that are relentless in ecosystem expansion during market turmoil, and lastly, don’t forget to analyze tokenomics (i.e., vesting schedule and token releases).
On the Subject of Vesting
A vesting schedule refers to token unlocks by a project to seed and private round investors. If you’ve found a project with solid fundamentals that checks all the boxes regarding a qualified team, use-cases, and so on, be mindful of token release dates. Typically, token releases are followed by investors taking profits and a dip in price, which could present a good entry point if you’re ready to become an investor.
Avoid Timing the Bottom
The adage “buy low sell high” has prompted many novice investors to hold off until they are confident the absolute basement price target has been achieved. But the truth is, no one really knows what the bottom will be and this is where researching a token or project’s chart history comes in handy.
It allows you to see previous highs and lows to gauge where an ideal point of entry will be. It’s also important that you take overall market sentiment into account and consider other macroeconomic factors before making any decisions.
Develop and Commit to a Strong DCA (Dollar-Cost Average) Strategy
Picture this: You’ve done your due diligence and technical analysis of a cryptocurrency that has been around for quite some time and has the fundamentals to stay around a lot longer. According to your findings, you’ve found a solid entry point in this bear market that shows a significant drop from an all-time high but holding support at the current level. So, you pull the trigger and make your investment, confident that this will 5x-10x when the bull market resumes.
But then, the unthinkable happens. The market takes another turn for the worse, and you’re down 3x on your investment! What is the best course of action from here? Buy the dip? Sell at a loss?
In situations like this, a common strategy utilized by some investors is Dollar-cost averaging — in which you increase your number of shares by investing the same amount of capital if the price drops (or rises) by a predetermined percentage. DCA is a more proactive approach than HODLing (Holding On for Dear Life). It’s a strategy that has proven to work remarkably well in even the ugliest of markets and is simple enough that all investors, regardless of their experience level, can benefit from it.
Here is a DCA example to help illustrate the process; please note that this is not financial advice. Instead, we are simply using arbitrary numbers to demonstrate how an investor can dollar-cost average:
Suppose you have a total of $500usd to invest in $TLOS. Rather than investing all your capital at once, you could invest one-fifth ($100) and commit to further investments if the price decreases or increases by a difference of 20%. If the price decreases due to a market drawdown, you’ll have the opportunity to acquire more tokens at a 20% discount. If market volatility increases, you can adjust your DCA strategy so that your next purchases occur after greater price reductions.
Ultimately this approach should be applied when you are confident in the asset you’ve analyzed and have a strict set of rules that you will adhere to.
Stay Focused and Positive
It’s easy to lose hope when things appear as bleak as they are. Still, market cycles are not a new occurrence. As the global economy bounces back from crippling economic conditions and the Russia-Ukraine war, so will financial markets — including crypto. In the meantime, stay focused on projects and networks that build relentlessly during the bear market to offer developers and users a more optimal ecosystem to participate in the blockchain world.
These are the entities investing time and capital to ensure crypto thrives regardless of market conditions, and ones that will provide you with the best opportunities.
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