The past few months have been a little unfair to the financial markets, with the crypto world bearing the brunt of the abuse. Recently, we all saw the most historic price drop of Bitcoin due to the post-LUNA market crash, leading up to collapses of centralized Defi protocols and crypto hedge funds, hence increasing the interest rate and global inflation.
It is pretty easy to witness why users are having the urge to leave the crypto world with so much existing volatility. Nevertheless, the path to the euphoric bull market does prevail for those interested in seeing the bear market through to green grasslands. The predominant emotion during bear markets is FEAR. But if you could step back, cool down your emotions, get some perspective, be strategic, think long-term, and use cash effectively, these bear markets can bring some great opportunities to build generational wealth.
There are two roads leading to the same destination. The first is chock-full of expensive mistakes, leaving investors with little or no capital to work with when the market recovers again. Another is a more vigilant route that needs better judgment and patience. Well, this is the path we will be talking about in this article.
Even when the market is going bearish, there are a few strategies that can still grow your crypto profits.
How Can You Profit from a Crypto Bear Market?
The last few months have been difficult not only for crypto investors, but for every investor. The market condition became challenging with rising interest rates, the Ukraine war choking bullish sentiment, and the continuous effect of the pandemic in China. For that reason, only a permabull will not confess that we are currently in the middle of a bear market. Furthermore, in some economic predictions, the possibility of a bear market is moderately high.
The crypto crash that took place in June 2022 has put the portfolios of most investors in the red. But have you ever thought of making money and earning profit during the crypto crash?
Well, even when the crypto market is experiencing an overall downtrend, the Defi and blockchain sector provides several ways to the investors and crypto-traders so that they can still emerge victorious and profitable.
We have come up with some lucrative options that every crypto trader must use to make money and stay afloat in a time of a bearish market.
Yield farming, a crypto asset management strategy, enables investors to farm for interests along with token rewards on their crypto deposits. It allows investors to lend their crypto assets to different DeFi lending platforms that hodl all the tokens within a liquidity pool for a particular period. The liquidity pool offers liquidity to the DeFi platform that utilizes the funds and assures that all the depositors are able to earn interest by depositing for a period of time.
You can lock up all your funds on the blockchain and earn rewards; that is what staking is all about. Although staking is similar to yield farming, it does not make use of tokens for loans. Rather, proof-of-staking blockchains utilize this process for verifying the transactions taking place on their networks.
Additionally, if you stake more tokens, you have a higher priority to verify transactions and obtain more funds. The profits from asset staking differ between platforms and rely on the governance community in every case.
Use DCA (Dollar-Cost Averaging)
Dollar-Cost Averaging (DCA) is a kind of investment strategy wherein crypto investors divide the reserve funds they aim to invest into smaller portions and trade with them at regular time durations, whether the market is down or up. DCA is considered the ideal strategy to implement during the crypto bear market.
Examine smaller DeFi projects
A new project of DeFi may comprise a low valuation once it gets launched but depicts significant promise in the longer run. If you are a crypto enthusiast and take the time to research these projects, then you are likely to profit from the suitable ones.
Margin trading is another best way to earn profit in a down-trending market. The method involves investing in crypto assets using funds from brokers. Using margin trading, users can trade with more funds than they have in their accounts. This enhances potential profit.
While margin trading is considered an effective method to profit in a bear market, it is only recommended if you are an experienced crypto-trader. This is because there is a chance that you may lose the total capital when the market moves in an adverse direction of your call.
Futures trading mainly depicts the kind of trading by the process of futures contracts. It is an agreement that takes place between two parties (a buyer and a seller) to purchase or sell a commodity at a future date that both the parties have agreed upon.
Crypto futures contracts act like a hedging mechanism through which traders aim to hedge their crypto to get benefitted for a given time. One of the benefits of futures contracts is that it enables traders in minimizing the risk of addressing a huge loss from a price slump of cryptocurrency by considering a short future position. On the contrary, they can take a long position in the future to profit from a price hike.
Last but not least: Stay focused and be positive
It is common and easy to be hopeless when the situation appears as miserable as they are. As a human, you desperately want to lessen all your losses when hit with a massive dip in price. However, panicking and losing hope will not help you earn profit for a more extended period.
When you face such circumstances, relax and recollect your investment in crypto as to why you invested in it. You can make a tremendous difference in profit through planning.
Research the reason for the price drop, and build your own solutions—Re-strategize for a giant game.
The Bottom Line
Any condition of the crypto market has the potential to earn a profit if you are the right player. The above methods are helpful for inexperienced crypto traders, even during a bearish market.
However, every trader must know that their preferred tactic should depend on their portfolio size and risk tolerance. Also, as a trader, you must study the market to make your chosen strategy to earn profit during a bear market compelling.
DISCLAIMER: This content is not financial advice, please do your own research before investing.