Since its commencement in 2009, cryptocurrency and bitcoin markets have witnessed several cycles of decline and growth, even within the more significant continuing trends like bear and bull markets. Although it's a fact that a revival and significant growth have followed every market dip, decline periods can be stressful and challenging to navigate for new investors and experienced traders alike.
Recently, the crypto market has struggled due to the current economic and financial backdrop. The recent crypto crash observed ETH and BTC drop by approximately 30% in a single day and highly volatile markets. During such a market phase, a robust passive income strategy can help digital asset holders mitigate losses.
So, when the market prices begin to go crazy, what should you do to protect your cryptocurrency from market volatility? We want you to walk through some strategies to help you lessen your bear-market losses.
What is a Bear Market?
A bear market can be referred to as a widespread decline in the price of assets by 20% or more against all-time highs. It is a period denoting economic recession in which all the activities concerning the economy slow down. However, the cryptocurrency market remains no stranger to historical lows and highs on any given day.
A crypto bear market is a prolonged period of around three months wherein prices drop, market confidence becomes low, and supply is greater than demand. Therefore, it is a period wherein the prices of commodities or securities start falling. The crypto bear market generally stays for months and sometimes years. The "crypto winter" is one example that began in December 2017 and ended in June 2019 when the price of Bitcoin dropped from $20,000 to $3,200.
But instead of crying in the corner, we inspire you to follow the below-mentioned tactics while facing the bear market.
Reduce Your Losses in a Bear Market
It is sometimes challenging to stay cool and calm when crypto-assets lose double digits. But you do not need to bury your head in the sand and follow some simple approaches to capitalize in a bear market.
Stay Calm And Do Not Sell In Panic.
Investors are usually in a dilemma about whether to sell digital assets when the crypto market is in a slump. However, if you are trying to sell your crypto asset at a loss, the market dip becomes tangible, mainly the loss of your money.
The most suitable way to deal with this is to stay calm and evade panic selling. There is eventually an end to all bear markets with market recovery. Also, the investors who can ride the storm get rewards with profits in the long run. Moreover, individual cryptos may not be able to exist during a market downturn.
There are specific market segments in a bear market that get hit harder as compared to others. Some experts often mention that you must have a diverse portfolio as it can help you reduce losses and take benefit of gains in rising markets.
In the crypto space, that might signify expanding your investments all over large-cap leaders, DeFi-related tokens and coins, rapidly evolving new cryptos, stable coins, and cryptos linked with the NFT market. According to investment advisors, diversification can help protect your portfolio against losses as some market sections are likely to lose less value than others.
Cover All Your costs
Investing is crucial, and so is having a roof over your head. It will help if you prioritize covering all your living expenditures. If you are counting on short-term market profits for paying rent, then you are not in a place to make sustainable choices because the value of your portfolio drops. It is highly not advisable to take short-term funds such as money for groceries or mortgages and invest them.
Many advisors recommend that you compare your lifestyle with your paycheck and create a savings account with around three to six months of your living expenses to preserve your solvent during an emergency.
Invest In Derivatives
Derivatives are considered complicated financial instruments that enable investors to reduce risks and earn money during the decline of market prices. Options and futures are the most common derivatives. The investors acquire an asset with both these derivatives.
Additionally, derivatives help lower risk. If the trade results in a loss, the investors would not implement it. The investors also lose the fee to buy the option or future, usually a small amount.
Derivative trading has customarily required the broker's services, but blockchain-based DEXs handling crypto options and futures are beginning to emerge. These financial instruments are not entirely without risk; however, they enable knowledgeable investors to experience huge profits in declining markets.
You should never allow bear markets to hurt you. You can safeguard your funds by depositing ETH, BTC, and USDT to get crypto arbitrage profits and continue enhancing your capital. In contrast, all those who let their crypto sit idle, doing nothing, may tend to lose money at the end of the day.
Bear markets are an excellent reminder to manage risk, restricting the number of risks investors and traders take. That implies investing only that amount of money you can bear to lose, so you are never compelled to trade at a loss.
Additionally, the bearish season can be a fantastic opportunity to examine whether your portfolio is appropriately diversified and de-risked. You should always be well-informed about the amount you stake and the time you need to compensate for all the losses.
DISCLAIMER: This content is not financial advice, please do your own research before investing.