Summary: The cryptocurrency market is undoubtedly in a bear cycle that could last for more than a year. During this time, some investors are panicking as they see their gains disappear overnight. Others who are more confident in the long-term potential of cryptocurrencies believe that this is a buying opportunity, and continue deploying capital in the ...
The cryptocurrency market is undoubtedly in a bear cycle that could last for more than a year. During this time, some investors are panicking as they see their gains disappear overnight. Others who are more confident in the long-term potential of cryptocurrencies believe that this is a buying opportunity, and continue deploying capital in the market. However, not all buying methods are equal, and some are better than others for maximizing gains in unideal market conditions.
For those looking to take advantage of current market conditions and buy more crypto, the first step is to determine which projects are being sold at a significant discount to their potential future value. This is a critical step, as most crypto bear markets show no mercy to weak projects, and many coins in the top 50 may never see a new all-time high again. For example, 2017’s bull market saw coins like Neo, Nano, and Stellar reach highs that were never again reached. There could be many projects in this bear market that could face a similar fate, especially those that were backed more by hype and future promises than real-world use cases. Some of these include alternative layer 1s, metaverse tokens, gaming platforms, and unsustainable DeFi projects.
The most solid cryptocurrencies to buy at a time like this are those with a proven track history, a large developer community, and continued activity surrounding the project. Some of these include coins like Bitcoin, Ethereum, Chainlink, and Polkadot, though many others also fit this category.
Once an ideal mix of coins to invest in is found, the next step is to choose when to buy them. A common strategy is to buy a lot of the coins at once and hope that their prices are near the bottom. Unfortunately, this is incredibly difficult, and it is very easy to time the market incorrectly and end up losing even more money as the markets continue to fall. Trying to time the market is like trying to catch a falling knife - it rarely goes as planned.
A more ideal strategy is to dollar cost average into cryptocurrencies over an extended time frame. Dollar-cost averaging is when an investor buys a specific amount of an asset on a repeated basis, whether that be daily, weekly, or monthly. Through dollar-cost averaging, investors are able to buy an asset at a lower average cost than if they bought all at once, and with less risk. For example, if someone spends $1000 to buy 1 ETH and then ETH continues falling they have bought at the wrong time. However, if they buy $100 of ETH over 10 weeks, it is much more likely that they will buy at a lower average cost, thus leading to more gains when the market recovers.
Another often-overlooked tactic for bear markets is staking. A lot of top cryptocurrencies, including Ethereum, Polkadot, and Cardano allow users to stake their coins and earn an APY of 3-5%, if not higher. For investors who are planning on holding their coins through a multi-year bear market, these returns could be incredibly lucrative once the cryptocurrency prices recover. For example, staking 10 ETH for two years will yield around 1 ETH assuming a 5% rate. This could be tens of thousands of dollars in the next bull market that is received entirely for free. Major exchanges like Coinbase and Binance offer staking support but take a cut of the profits as a fee.
Dollar-cost averaging is a disciplined approach that requires a long-term outlook on the market and confidence in one’s decisions. When utilized correctly, it can lead to much greater gains than simply buying when the market is crashing. Many top exchanges, such as Binance and Coinbase, support weekly recurring buys which will help retail investors accumulate cryptocurrencies over the long term. This, along with choosing good projects and staking, will help investors accumulate wealth during this bear market.
By Lincoln Murr