If you’ve been around crypto, you’ve definitely heard expressions like “Bitcoin entered the bear market this week” or “the cryptocurrency market looks bearish at the moment”.
Today, we will go down the rabbit hole and figure out what a bear market is and how you can strive in it!

What is a bear market?

 

Bullish and bearish sentiments are used to describe the level of investors’ confidence in the current crypto market status and performance. In this sense, when the market is in an uptrend with rising prices, it’s called a “bull market,” and when the market experiences a downtrend with falling prices, it’s called a “bear market.” To put it simply, both terms are generally used when there is a long period of upward or downward trend or when the market experiences a significant price swing of at least 20%, but most frequently this number is bigger.

The term “bear market” refers to the period when investors and crypto traders lose confidence in cryptocurrencies, and that leads to a situation when trading volume decreases, supply prevails over demand, and all of that starts causing prices to fall. This is a prolonged period of decreasing prices, uncertainty and doubt; a period when the environment and sentiments force you to sell your assets out of fear and anxiety, rather than buy more, hold on and hope for the growth to come.
During this period, there is a general distrust of the crypto market not only among investors but also among economists and traditional financial institutions. Mainstream media either does not cover cryptocurrency at all or only discusses it negatively.Good news does not cause a trend reversal, and bad news only makes the prices go even deeper.

It is important to note that a bear market should not be confused with a correction, which is a rapid decrease in an asset’s price when it rises above a reasonable level. Usually, such a pullback equals at least 10% of a recently achieved all-time high, and sometimes a correction can trigger a bear market by causing panic selling. Nevertheless, they are not the same thing and should not be mistaken for one another.

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BTC/USD Chart; Souce: Investing.com/TradingView

Unlike the stock market, which already has years of history and relevant data, it is not easy for the crypto market to predict even the approximate time when the bear trend will end and if the prices have already reached their bottom level due to the overall crypto market’s youth and lack of clear signs. As for rebounding — it is a very slow process and it might take a while before some events or other external factors bring back the next bull run.

Since the crypto market is notorious for its high volatility, any bad news like “The government of X country bans Bitcoin” can immediately stop the ongoing bull run and switch the whole market to a bear trend in a matter of seconds. The same thing can happen when investors and crypto traders suddenly start selling their assets to harvest the gains, thus making the price fall from its all-time high and sending it into a downward spiral, like what we all saw in December 2017. Back then, when Bitcoin’s price had reached the $20,000 level, crypto traders started to cash out, thus causing a trend reversal, creating a massive dip and sending the whole crypto market into the embrace of a bear.

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BTC/USD price chart 2016-2020; Source: Coinmetrics

 

The causes and indicators of a crypto bear market

 

An ongoing downtrend usually causes a bear market to come in full force. As investors see their assets’ prices continue to decline further, they lose faith that given cryptocurrency’s value will reach previous highs soon and they cap their losses. However, even though there are some exceptions like the one described above, the downtrend usually does not start from thin air and it is preceded by some bad news like geopolitical crises, pandemics, wars, government intervention, and similar events that can somewhat put the global economy at risk.
Nevertheless, sometimes there may not be any wars or economic crises happening around us, and yet the bear market happens, despite the lack of any negative events on a global scale.

There are a number of indicators that can help you detect the potential start of a bear market. Let’s take a look at some of them below.

  • Federal funds rate changes. The overnight lending/borrowing rate at which banks lend/borrow their excess reserves.
  • Backwardation. Backwardation is a term that is used to define the situation when the futures market price of an asset is lower than the current market price.
  • Government intervention. One of the most vivid examples of such intervention is China’s ban on crypto mining. Interventions and bans of that level when coming from the governments always lead to uncertainty and cause fear among the crypto traders and investors.
  • Lowering trading volume. When you witness that the trading volume is decreasing, then this indicates that investors and crypto traders think that the best strategy now is to not take any risks, and hold their coins, since they are not sure about the crypto market condition.
  • Death cross. When the price of an asset’s 50-day moving average (MA) falls below the 200-day MA, a technical indicator named “Death Cross” emerges, indicating recent selling pressure which causes the short-term average price to fall below the longer-term average price.
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Death Cross; Source: TradingView/Cointelegraph

 

How do you survive the crypto bear market?

 

Since the causes of every bear market are different, it is impossible to predict how long it will last. Sometimes, the bear market can last for months, or even years. If investors were hurt pretty badly during the last bear market, it might take a lot of time before the next bull run starts. In that case, planning some sort of strategy for survival becomes vital in such circumstances. Let’s take a look at some crucial do’s and don’ts during the bear market, both for long-term investors and day traders:

 

Tips for long-term investors and hodlers

 

In case you believe in strong hodling and you’ve been investing mostly in long term projects (at least 3-5 years of waiting), then it might be a good idea to move your focus to other aspects of the crypto world during the bear market to not stress yourself out too much. Here are some advices that may help you during the bearish market:

 

Do not panic and keep your head cool 

Definitely, seeing the prices of your digital assets falling down can be frustrating. In fact, this feeling can be so overwhelming that you might start forgetting that not so long ago all you wanted was steady returns, and now, out of nowhere the only thing you are thinking about is cutting your losses by selling before it gets even lower. You don’t want to do that. Simply because this step will violate one of the golden rules of crypto trading: keep your emotions away when dealing with crypto. And, of course, selling at a loss grants you nothing except locking you further in losses.
What you want to do is take a deep breath, calm yourself down and remember that the crypto world is highly volatile, and this is not the first time the downfall happens. Just open the price chart of any major cryptocurrency and take a good look at it: you’ll see that such downtrends are not new, and have already happened before. Surely, there is nothing wrong if you would like to close a few deals with a relatively small loss to put your money elsewhere. However, cashing out completely with heavy losses is something that you don’t need to do: remember, you are not in loss until you sell it.

 

Diversify your portfolio 

Never put all your eggs in one basket. It’s as simple as that, and hopefully, you’ve done that before the bear market has even started. If not, then you should definitely make a note about it and never take that risk again. In fact, this advice works well for both traders and long-term investors.
The reason why you’d want to diversify your portfolio is that you can never know which cryptocurrency will recover faster than the others. It might be a good decision to invest some of your money in the top 20 cryptocurrencies and invest the rest of the amount in more risky projects. However, before investing it would be wise to do some thorough research of the project and study how well it was recovering from previous bear trends. Try to answer the questions like: how often does this coin outperform other major cryptocurrencies or how strongly does this asset correlate with the rest of the crypto market? The main point of all this is to invest smart, not hard.

 

Look for solid projects with use cases

It is much easier to overcome the bearish market when you are focused on investing into projects with a 3-5 or even 10 year lifespan. Projects of that kind take advantage of short-term projects since they require much longer periods to grow and prosper, yet such projects usually deliver steady returns. So it might be wise to have projects that you believe (and that belief comes from research of course) will prosper in the long term. Look for projects with the real use cases, with history of investors’ trust and support, and with the fully doxxed team who has a roadmap and whitepaper, so you could know who is behind this cryptocurrency and what they want to achieve. Solid projects like these usually do not have troubles when recovering from a bearish market.

 

Focus on researching, not charts monitoring

Bear market might be the time that can give you a nice opportunity to study the crypto world. It can be learning more about general topics like blockchain technology, Web3 or GameFi, or some particular cryptocurrencies, be that the ones that are already on the market or those that are still in the development stage. Learning about different trading strategies like QFL or scalping might also be a good idea since they might come in handy in case you would like to start crypto trading in the future. The extensive and multifaceted world of crypto goes way beyond just the price charts. So consider this period of studying as an investment into yourself, since knowledge has the same value as your funds.

 

Look for other passive income opportunities  

It is obvious that when you see your assets’ prices fall down dramatically, you start feeling insecure, and you might want to compensate for some of your losses. In that case, you should take a look at such activities like liquidity mining, yield farming and staking. These activities can provide a certain level of security, and allow you to make profit during a bear market. So what are these activities about?
Liquidity mining refers to pairing cryptocurrencies (both tokens or coins) the trader holds, and storing them in the liquidity pool. That allows, for example, DExes to have enough liquidity and liquidity miners to receive a reward for their investments.
Yield farming refers to earning interest on cryptocurrency, just like earning interest on fiat money in savings accounts. With yield farming, it takes an investor to lock his or her digital assets for a period of time in order to earn interest or other cryptocurrency.
Staking stands for supporting a blockchain network by committing a trader’s crypto assets. Staking can be utilized with cryptocurrencies that use the proof-of-stake method, like the upcoming ETH 2.0 upgrade for the Ethereum network, and it allows investors to earn passive income.

 

Tips for crypto traders

 

In case you are an active trader who believes that the bear market has as many opportunities to make money as the bull market (which is actually true as in reality the volatility is more important than the direction of the trend actually), then these tips may be helpful for you to squeeze the most out of the downtrend:

 

Buy the dip using DCA

“Buy the dip” implies the practice of purchasing a certain number of digital assets whenever there’s a significant bearish correction in the crypto market. Whenever and if the price returns back to its original level, those traders who have bought the dip will make a good profit.
Usually it is done in one trade, but what could be also appropriate is to use a strategy known as dollar-cost averaging (DCA). This entails dividing your reserve funds into smaller chunks and trading multiple times over time.

Let’s say you have $500 in your emergency fund. A decent DCA technique would be to divide the money into five $100 tranches or perhaps ten $50 tranches and trade with those smaller amounts.
Since it is impossible to say if some given cryptocurrency has reached its bottom level, spending all your money in one shot might not be a wise idea. Instead, it might work out better if you buy with smaller amounts every time the asset’s price goes lower.

Try running DCA strategy with TradeSanta bot!

 

Use indicators to get the best entry point

With the help of indicators your trading routine might become more fruitful. Certainly, no indicator is 100% accurate nor can guarantee you anything, however with their help you can get a strong signal when it’s time to buy the dip. One of the most popular indicators is RSI.

RSI is a momentum oscillator that calculates the recent price movements of an asset in the range of 0 to 100. The calculation is based on Losses and Average Gains. The closer RSI is to the edge the higher is the asset’s movement magnitude.
The RSI shows if an asset is overbought or oversold. Usually, an asset is considered overbought if its value is over 70 and oversold if its value is below 30. RSI may also remain near the edges during strong downtrends and uptrends.
RSI is helpful for spotting chart patterns that may not be visible on the asset’s chart, such as double tops and trend lines. Traders can spot signals by looking at divergences between the RSI chart pattern and the price trend line. RSI can help you spottim the bottom price: the RSI line should be close to or into the oversold area on a larger time frame to signal a strong reversal opportunity.

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BTCUSDT chart; Source: Medium:WolfpackBOT/TradingView

Consider Scalping

Scalping is a trading strategy that involves quick execution of a large number of small deals in the intent of accumulating small profits at the end of the day. Unlike swing traders, who aim to make a larger profit by holding an asset for a longer period of time, scalpers prefer to make tiny, steady profits that can add up to large gains over time. Good thing about scalping is it is flexible and it can be applied during both bullish and bearish trends. Yes, it might be exhausting to sit there for a few hours and do all these monotonous actions, so you might consider using crypto trading bots for that matter.
The main rule while implementing scalping strategy is to not get too greedy. Remember, it can take only one major dip to ruin all your work and profits, so you should consider keeping a tight stop loss in order not to lose what you’ve earned.

 

Forget about highly-volatile altcoins

We’ve all heard stories and rumors about some meme coins that delivered 100X and made someone a very rich person. However, even during the bullish trend investing in and trading highly-volatile NFTs and meme coins might get you into trouble. The scams like pump-and-dump, rug pulls and ponzi schemes happen even during a bear trend. So instead of risking even more than you already do while trading during the downtrend, it might be wise to stick only to the cryptocurrencies that’ve been around for some time already, have a decent amount of holders, trading volume, and market cap. Let’s say Top 50 would be more than enough to cover your trading needs.

And in case you are not sure which trading pair to pick but at the same time don’t want to see your assets losing value while you’re still thinking over your next move, you can transfer your investments into stablecoins, or start staking to cover some of your losses.

 

Avoid FOMO (Fear Of Missing Out)

FOMO stands for “fear of missing out,” and some investors, particularly inexperienced ones, make the classic mistake of returning to the project they just sold in the hopes of making a higher profit. The crypto market can be the subject of external manipulations, and the risk of losing your investment because of reckless behavior is enormous.
Never make decisions based on emotions, but rather on research and common sense. Even if you just sold your currency and it all of a sudden began to grow in value, do not FOMO back. You will probably lose more than you will gain.

 

Final thoughts. Should you invest in a bear market?

 

Sometimes crypto traders, especially those with little experience, think that a crypto bear market is something negative. However, a bear market is neither good nor bad; it’s just a part of the whole market system that moves in cycles. So it makes sense to invest during a bear market, and it is also possible to make money during the downward trend. You just need to apply different strategies.

During a bear cycle, you should consider buying the dip and stick to long-term investing. This kind of strategy can pay off when the next bull run starts. However, even if you prefer short-term strategies, you can still make money during a bear market; for that, you should look for corrections and price spikes, then apply short selling and dollar-cost averaging strategies. It is possible to gain more and lose less during both market trends. All you need to do is be more flexible, keep your head cool, and do your research on a constant basis. In that case, it won’t matter to you which sentiment prevails in the crypto market since you can make the most of it regardless of the public’s confidence.