At the moment, many new crypto investors are experiencing their first crypto winter during which almost all digital assets dropped about 70% from their November 2021 highs.
The question is, how do more experienced traders hold on and what are some of the easiest things to do to make money in times like this? How is it possible to make money in a bear market?
What is a bear market?
To fully understand the answers to these questions, it is important to fully understand exactly what a bear market is. Usually, it is defined as when the stock market or the broader market in general drops by 20% or more over a certain period of time, which is most commonly about two months, according to the Securities and Exchange Commission (SEC).
Bear markets are also identifiable as almost every asset is experiencing a downward trend. Investors usually make the best of these conditions as they start buying stocks at lower prices which then, in turn, ends the bear market.
Bear markets usually cause feelings of low confidence and pessimism amongst investors which means that some investors often ignore any good news during these conditions. This also causes them to sell their holdings quite quickly to push the price lower.
Most of these negative feelings are caused by the fact that it is almost impossible to predict a bear market. This means that investors will almost inevitably lose about 5% of the value of their assets before realizing they are in a bear market.
Adding to the emotional experience of the bear market is the fact that investors are often overwhelmed by the volatility in the markets, the uncertainty about their futures and the money they already lost. This could lead investors to make emotional and irrational decisions, causing long-term damage.
For the most part, prices usually end up higher after a bear market, but damaged portfolios might take a bit longer to recover, and some never do. This is one of the reasons why capital preservation is a priority when it comes to investing.
On the bright side, the bear market could create some great opportunities for some. Warren Buffet agrees with this sentiment as he was quoted saying you should be “greedy when others are fearful”.
What is a bear market?
On the other hand, in a bull market, which occurs when investment prices are on the rise for sustained periods, confidence is soaring.
Propelled by the thriving economies and low unemployment that usually accompany bull markets, investors are eager to buy or hold onto securities and thus creates a buyer’s market.
Because there are so many differences between bull and bear markets, the way you make investment decisions varies greatly. Having a bigger allocation of stocks is optimal in a bull market where there is more potential for high returns.
One way to capitalize on a bull market is to buy stocks early on and sell them before they reach their peak.
Benefits of a bear market
One of the best benefits of the bear market is the fact that there is now a very low price entry point for investors. This is the perfect time to invest as bear markets are almost always followed by higher prices. This means that a bear market can greatly reward those who took the chance to invest in assets or stocks when the prices were low.
Bear markets can also teach investors valuable lessons when it comes to controlling their emotions. If investors are able to take control of their emotions, they will learn that there is light at the end of the tunnel as business sectors generally return.
Although it might take some time for the markets to get back to normal, there has still never been a time in history when business sectors failed to recover.
Bear markets can also teach investors to be more consistent with their investments and to allow their investments some time to grow. Constantly contributing to a losing market will not only give an investor more stability, but it will also help their overall returns.
A bear market can also give investors an idea of their risk tolerance. Once they figure out how much risk they can handle, they can adjust their investments and strategies accordingly. This will also help investors have a more positive attitude towards market volatility.
Making money in a bear market
A bear market does not necessarily mean that you can only lose money. It is still possible for investors to make a profit during these conditions. Bear markets can actually provide investors with the perfect opportunity for long-term wealth creation.
6 Ways to make money in a bear market
1. Dollar-cost average
One of the easiest ways to make money in a Bitcoin bear market is to regularly invest in the crypto market. It is impossible to know how long the crypto winter will last, but dollar-cost averaging will be beneficial for long-term investments.
Dollar-cost averaging is a strategy where investors invest money in equal amounts over time. This allows investors to smooth out the purchase price over time and prevents them from investing all their money when the prices are at their highest. This strategy will also allow investors to buy more crypto as prices fall.
Over the long term, the average price of the digital asset will start to even out. Investors also stand a chance to make a rather decent profit when a bull market strikes.
Dollar-cost averaging also offers additional benefits to investors who contribute to tax-advantaged savings plans.
One of the best ways of implementing dollar-cost averaging is by selecting a certain day of the month to buy the same crypto or stock for the same amount of money. Some services have features that allow investors to automatically set this feature. The amount of money the investor spends should remain the same while the amount of assets you receive changes over time.
2. Do not try to reinvent the wheel
Another way to make a profit during a bear market is by simply following what other traders are doing. Investors do not have to be experts at trading as they can just follow other more experienced traders to see what works for them.
One simple way for investors to follow what other traders are doing is by either joining a Telegram community or group like BelnCrypto.Trading. Groups like this usually offer video tutorials on how to read, use and understand things like trading signals.
These groups were started to help newcomers in the industry to start trading by providing them with a daily market analysis for educational purposes.
Some very experienced traders have their own groups where they share their signals. These professionals usually charge a small fee to be accepted into the group.
Copy-trading is also a very popular way to follow what other traders are doing. With copy trading, investors are able to copy the positions opened by other more experienced traders. Some of the platforms investors can look at to apply this strategy are AvaTrade and eToro.
Some platforms like StormGain offer in-built signals. These are AI-powered trading signals.
3. Be a good learner
Although it is almost impossible to tell when the crypto winter will be over, investors can still make it a priority to learn more on how to improve their investment strategies.
Before trading in the crypto markets, investors can try to find platforms that allow them to learn and test their strategies. These platforms can also allow them to use their trading signals and to follow their intuition. When investors finally feel comfortable with their knowledge, they can then start trading with real money.
Some of the most popular platforms investors should look at to test their skills are AvaTrade and eToro. StormGain offers a similar demo model and is one of the most well-known exchanges in Latin America.
4. Stablecoins are your friend
If an investor is still not ready to start actively trading, they can still learn and gain some trading experience during a bear market by reducing the inflation of their assets by investing in stablecoins.
The best option for these traders would be to invest in stablecoins that are pegged to a fiat currency like, for example, USDT or USDC. Investors should, however, tread cautiously around algorithmic stablecoins as they are not backed by anything. The Terra Luna collapse was a costly lesson for many a trader, experienced or not.
Investing in the king of crypto, Bitcoin (BTC), can also be a good idea as it is a decent long-term investment. Even big institutional hedge funds are placing their trust in BTC.
It is true that simply holding your funds in stablecoins and BTC will not do much for investors, but there are platforms like Nexo and Binance which offer good APY (annual percentage yield) investment rates for stablecoins.
However, it is important for investors to keep in mind that most of these returns are limited to small amounts. Investors should also always understand the terms and conditions of these programs.
An example of this is the fact that Binance offers great APY returns in deposits smaller than 2000 euro. On the other hand, the APY returns are much lower for deposits over this price.
These earn programs might not turn an investor into a millionaire overnight, they are still a good way to make money during a bear market. The best part about this strategy is the fact that the investor barely has any risk despite the volatility seen in crypto markets.
5. Analyze news and trading signals
Almost anything an investor needs to know about what is going on in the market is freely available on the internet. For example, BelnCrypto Trading Community receives trading signals and daily news about the crypto market.
The internet is by far one of the best ways for investors to stay on top of what is happening in the crypto market. In addition to Telegram groups, YouTube videos can also be a great source of market information and news and the same can be said for podcasts.
Investors, one again, don’t need professional knowledge to follow the trading signals as these platforms usually share related news and even free market analysis.
Most websites also have “learn” sections which are also valuable sources of information. Investors can also find detailed research on the latest technologies used in the crypto and blockchain world in this section.
Having a comprehensive understanding of market conditions, the opinion of educated analysis and the daily activities in the crypto industry is a great way for investors to make money during a bear market.
6. Choose wisely
Investors should always remember that they are in control, which means that safety should always be their number one priority. This is why it is so important who investors choose to trust in the industry.
Bigger exchanges like Binance and Kraken are well established and can be trusted as they already have millions of users.
Investors should make sure to always check the available security information when choosing a new exchange. Another thing to keep an eye on is their audits of funds and which financial institutions support them.
Someother security checks investors have to prioritize are the exchange’s risk management policies and financial certificates from regulatory institutions. Investors should also read the risk disclosures before trading Forex, CFDs, Spread-betting or FX Options.
CFDs, for example, are very risky investments and about 70% of retail investor accounts lose money when trading with CFDs.
Investors should also make sure to check the real-time audit of funds supporting the platform.
To Recap
As is evident from the above-mentioned information, there is no shortcut or secret method to make money during a bear market. The only way to accomplish this is for investors to use the right investment strategy that provides long-term returns on investments.
It doesn’t matter if you prefer the stock market or the crypto market, buying the dip is still the very best way to make money during a bear market.
Investors should also always remember that crypto will not last forever and they can always profit from decentralized finance platforms that offer interest rates for digital currencies. Although trading volumes are a key factor in making a profit, dollar-cost averaging is still the best recipe to make money over the long run.
