What are the Do’s and Don'ts of Investing in a Potential Bear Market?

The cryptocurrency market is in a freefall. Bitcoin is now down 52% from its all-time high, and there has never been a time in Bitcoin’s history where this type of price action did not lead to lower prices in the future, hinting at the possibility of a bear market. In order to maximize gains and minimize losses, investors should not invest with emotion, continue dollar cost averaging, and look for opportunities and discounts on coins with fundamental value.

For all intents and purposes, the bull market is over. Whether this means the bear market has begun is up for debate, but according to historical data, it is fairly unlikely that Bitcoin recovers to hit new all-time highs anytime soon. The level of speculation over the past months has been incredibly high, and this is the correction that has been fated to happen, like it always does in every market. Take a look at this graph from 2017 and compare it to the Bitcoin price graph from today. Does it look familiar?

Even though the crypto markets in early 2021 were incredibly easy to make money in, we now have to invest with much more diligence and research in order to not lose money daily. Here are some of the most important do’s and don’ts for investing in a time where the future is uncertain, but people still want to maximize their Bitcoin profits and believe in the long-term future of cryptocurrency.

First, if you are using a dollar cost averaging, or DCA, strategy, don’t stop because of the bear market. DCAing only works if it is used in both the bear and bull market. By continuing to buy as the prices fall, you are effectively lowering your average price, meaning that when Bitcoin does eventually rise back to new highs your profits will be greater. Stopping now would make no sense, which leads us into the next point:

Don’t invest with your emotions at the forefront of your decision-making. It’s easy for some newly-minted crypto millionaires, or even those who now have over $100,000 in cryptocurrencies, to think emotionally about the amount of money they are losing. However, this is incredibly harmful, both for your health and your portfolio. By thinking with emotions, it’s easy to panic sell everything and be left with a loss. Even though the short-term fluctuations of cryptocurrency are incredibly scary, it’s easier to think about the new prices as a discount rather than a drop in value. Furthermore, cryptocurrency gains or losses are not set until money is taken out. If the market goes down and you don’t cash out, there’s still a chance it could rebound back to the initial price or higher, so it’s not a true loss. 

During the bull market, almost anything that was remotely related to cryptocurrencies was increasing with price. This included the dog coins, clones of Uniswap, and many other fairly useless coins and tokens. As they say, “a rising tide lifts all boats” and this is definitely true for some of the worthless coins. Now, instead of buying whatever has some positive price action and hype on Reddit, it is better to do lots of diligent research before investing in a cryptocurrency. Those may be the only coins to recover, and the ones that people feel secure keeping their money in for the long-term. The best ways to do diligence on a coin are by reading the whitepaper, looking at different expert opinions, and understanding the team, tokenomics, and roadmap. If a project has an unknown team and little plans for the future, it may be a good idea to stay away from that coin.

Even though for some it is tempting to buy a lot now and take advantage of the discounts, it is not advisable to try to “catch a falling knife” and buy cryptocurrencies as they are falling. Nobody, no matter how confident they seem, knows when this freefall will end, and it could be a long while until the bottom price is set in. In the meantime, if people try to buy daily in order to buy the dip, they’ll be left holding a lot of coins at a high average price. Waiting until the market trades sideways for a couple days will ensure that the coins are unlikely to go lower, thus making it a much more safe buying opportunity. 

Another important piece of advice to keep in mind is that even though the price is changing, the technology is not. Whether Ethereum is priced at $1,000 or $10,000, the team and their goal of creating the next generation of the internet will not change. They will continue working on ETH 2.0 throughout the bear market and never lose sight of their main goal. Companies like Microsoft, Visa, and Square, who are looking into blockchain as a business solution, will not stop looking simply because the price has gone down. Many of the most powerful world governments, including China, will not stop their rollout of a central bank digital currency simply because Bitcoin isn’t worth what it used to be. 

The investors who bought at the top of the last bull market and held strong for the next three years have found themselves still up 50%, even after Bitcoin has plummeted. So, if active trading strategies are not your style, holding could still prove to be a time-tested way to make a profit in cryptocurrency.

No matter the short-term price movement, the coins and team behind them will not change. This is why it is so important to ensure that your money is in projects you truly believe in instead of hype-fueled scams. No matter what happens in the next couple of months to next couple of years in the cryptocurrency market, innovations will continue happening, and investors can take advantage of the lower prices that they all wish they could’ve had when they watched Ethereum and Bitcoin hit new highs earlier this year.

By Lincoln Murr

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