Over the past 2 years, the cryptocurrencies have plunged into the bear market, and it has become even more pertinent to learn how to leverage on long-term crypto price drop.
Since its inception more than a decade ago, the Bitcoin and cryptocurrency markets have experienced several cycles of growth and loss, even within the wider continuous patterns referred to as bull and bear markets.
In the first month of 2022, the crypto market lost more than $300 billion. On February 28th, only four days after Russia invaded Ukraine, the value of all 12,798 digital currencies in the crypto market decreased by 4.7% against the US dollar.
These significant negative occurrences in the cryptocurrency ecosystem have convinced many crypto investors that a crypto bear market is imminent. While each market correction has been followed by a comeback and major expansion, periods of the downturn can be unpleasant and difficult to manage for both seasoned traders and new investors.
A crypto bear market is nothing new for seasoned investors. There are several ways you may employ to escape relatively uninjured if you play your cards correctly. Indeed, you might even benefit from a down market when it comes to crypto taxation.
We’re going through all you need to know about how to leverage on long-term crypto price drop.
Bear market explained
A bear market is typically defined by a persistent loss in investment prices, usually by a drop of 20% or more from the most recent high. Individual equities can experience bear markets as well as a market as a whole, such as the Dow Jones Industrial Average or the S&P 500.
The phrase “bear market” can, however, apply to any stock index or individual company that has lost 20% or more from recent highs.
For example, we may claim that the Nasdaq Composite entered a bear market during the dot-com bubble bust in 1999 and 2000. For example, suppose a business discloses dismal profits and its stock declines by 30%. We may claim that the stock’s price has entered the bear market.
The bear market phenomenon is supposed to have gotten its name from the way a bear assaults its prey—by swiping its paws downward. This is why markets with declining stock values are referred to as bear markets. The bull market, like the bear market, maybe called after the way the bull strikes by pushing its horns into the air.
Although the phrases “bear market” and “stock market correction” are sometimes used interchangeably, they relate to two different magnitudes of poor performance.
A correction happens when stocks fall by 10% or more from recent highs, and a correction can be upgraded to a bear market when the 20% threshold is reached.
Investors’ pessimism and lack of confidence define bear markets. During a bear market, investors appear to overlook any good news and continue selling aggressively, driving prices even lower.
While investors may be pessimistic about a certain stock, this may not affect the market as a whole. However, when the market goes negative, practically all equities inside it begin to fall, even if they are individually reporting excellent news and expanding earnings.
Popular bear market examples
On the 24th of January 2022, the value of Bitcoin plummeted to a low of 33,495.91 US dollars. On February 24, 2022, the value of bitcoin fell to its lowest point of the month, reaching 34,750.15 dollars. That was the state of the cryptocurrency bear market in 2022.
For the Bitcoin cryptocurrency token and other cryptocurrencies, this effectively indicates that the first quarter of 2022 was a bear market for the cryptocurrency token.
As a result of this, the value of the Bitcoin digital token has rebounded significantly since February and is currently significantly higher than its previous low point of 45,000 USD.
The major cause for the decline was Russia’s invasion of Ukraine, which coincided with the Federal Reserve’s announcement of at least six rate increases. In addition, there were other developments inside the United States and the European Union’s regulatory framework.
Influencers of crypto bear market Characteristics of a crypto bear market
Investor fear or uncertainty is the most common cause of a bear market, although there are a variety of other factors at play. While the global COVID-19 outbreak triggered the most recent 2020 down market, the Russia-Ukraine war triggered a significant crypto bear market with over $200 billion in losses.
Widespread investor speculation, imprudent lending, oil price fluctuations, over-leveraged investing, and other factors have all played a role in the past.
Crypto Bear Market – How to Leverage on Long-term Crypto Price Drop
Although bear markets are typically shorter than bull markets, they can wipe out six months of gains in a matter of days.
Accepting that a bear market is inevitable is the first step in managing losses. The signs are there, but no one knows when they will begin or end.
If the crypto market is bearish, traders can take a few steps to keep their heads down and come out swinging. The crypto market does not have to end with the bear market; the bull will always outlast the bear.
Here are 5 ways to leverage on long-term crypto price drop
- Avoid panic sell
- Buy the dip
- Focus on the long-term
- Research, research and research
- Explore staking options
1. Avoid panic sell
Panic selling, or the act of departing the market at a low price due to fear, is commonplace in bear markets. While FOMO (fear of missing out) is more typically linked with buying during bull markets, panic selling is more closely related to bear markets.
The Fear and Greed index uses a scale based on market sentiment to distinguish between the two, allowing anyone to analyze market sentiment before making a deal.
Panic selling is not unique to cryptocurrency markets; it can also be found in stock and financial markets. Fear has an ingrained trait in people that permits it to overrule reasoning, resulting in poor decisions, especially in the investment sector.
Fear is frequently sparked by the news, notably in the United States, China, and the United Kingdom, where FUD spreads like wildfire and stock values can plummet in an instant. Consider Elon Musk’s remarks about Bitcoin and Dogecoin, as well as the media frenzy that surrounded them.
To avoid this, traders should devise an investment strategy that they can stick to and refer to when their emotions take over. We recommend that you pay special attention to the following suggestions if you want to prevent any discomfort when it comes to investing in crypto.
If you find yourself inclined to engage in unprofitable actions, consider the following guidelines to completely avoid panic selling.
- Begin by investing funds that you do not need
- Always refer to the basics
- Make use of a Dollar-Cost Averaging strategy
- Concentrate on long-term gains
- Take risks and be ready to face setbacks
2. Buy the dip
“Buy the dip,” is a popular rallying cry on social media every time the market falls in value. Returning to the concept of purchasing cheap and selling high that we discussed previously, it can be a profitable move in some cases. “Buy when there’s blood on the streets, even if the blood is your own,” as Warren Buffett famously stated.
Buying the dip adheres to the basic investment principle of “buy low, sell high,” but with a more proactive strategy. A significant decline in crypto prices and a solid indicator that they will recover again are both required for buying the dip. One of the most prominent examples is when the stock price of a huge organization declines abruptly owing to widespread market anxieties rather than concerns about the company’s long-term success.
Depending on the situation, buying the dips has multiple contexts and varying odds of working out profitably. If an asset falls inside an otherwise long-term upswing, some traders say they are “buying the dips.” They anticipate that the upswing will restart following the downturn.
Markets plummeted in early 2022 due to concerns about the continued pandemic, inflation, Russia’s invasion of Ukraine, and interest rate hikes. To be clear, no one can predict when the market will hit rock bottom, and attempting to time the market is never a wise idea. That said, if you’re willing to invest for the long term and know where to search, there are plenty of possibilities to invest in cryptocurrencies during downturns.
While we recommend buying the dip, keep in mind that, like all trading techniques, buying the dip does not guarantee gains. An asset’s value might fall for a variety of reasons, including changes in its fundamental worth. Just because the price is lower than before does not always imply that the item is a good buy.
3. Focus on the long-term
The crypto market, like other markets, is long-term. Understand that with cryptocurrencies, there are winners and losers. The crypto market is notoriously volatile. As with every asset, crypto has its ups and downs. Instead, look at the crypto market long-term.
When cryptocurrencies plummet and appear to continue plunging indefinitely, our tendency is to sell “before things get any worse.” Then, when bull markets occur and stocks continue to hit new highs, we invest in order to avoid missing out on gains.
Making knee-jerk reactions to market swings is one of the worst things you can do during a bear market. Over the long run, the ordinary investor considerably underperforms the broader stock market, and the fundamental reason is that they trade in and out of stock positions too frequently.
While it is widely accepted that the primary objective of investing is to buy low and sell high, reacting emotionally to market movements does the exact opposite. Invest in cryptocurrencies you want to hold for the long term and avoid selling them just because their prices fell during a bear market.
Investors selling depreciated assets to meet short-term aims or prevent additional declines might wreak havoc on finances.
4. Research, research and research
Rather than focusing on the market’s decline, strive to use this time to conduct your own research. Time spent learning about cryptocurrencies in general, or about specific cryptos, is never wasted.
If there is a particular area of crypto that you wish to gain a deeper understanding of, this is a fantastic place to begin. Alternatively, you may wish to hone your investment skills in order to manage risk differently in the future.
This brings us to Technical analysis. You can not effectively learn to carry out crypto market research without technical analysis.
Technical analysis (TA) is the process of analyzing financial instruments in order to forecast their future price movements. It is the process of identifying trading opportunities by the analysis of statistical trends derived from historical price action, volume data, and trading behaviour.
Unlike fundamental analysis, which seeks to forecast an asset’s value by considering a variety of external factors affecting the asset’s price, technical analysis employs a variety of indicators and analytical tools to determine an asset’s strength and weakness and forecast its future price trajectories.
Technical analysis is a widely utilized technique for analyzing financial markets. It is applicable to any financial market in which the price is determined by supply and demand dynamics, such as stocks, FX, gold, and cryptocurrencies.
5. Explore staking options
Staking is one technique to boost your security and profit margins over the course of a long-term investment in the crypto industry.
Staking is a method of effectively securing your cryptocurrency. Rather than lending them, staking is used to validate transactions on the blockchain network on which the tokens are staked.
While staking is not a popular method to employ during a down market, the initial investment required to attain the staking level for certain cryptocurrencies is significantly less than it is during a bull market. By securing your crypto on a blockchain for the shortest length of time possible, you may continue to earn tiny profits and generate passive income.
We’ve discussed what occurs in a bear market, how long it lasts, and how to leverage on long-term crypto price drop.
A common rule is to avoid letting your emotions get the better of you and making panic sell-offs, which is summarized as follows: Instead, take advantage of the opportunity to DCA, buy the dip, or even conduct research on other cryptocurrencies and review your portfolio.
It is possible that studying the tactics we’ve described here, together with an analytical attitude and practice, may ultimately provide you with a competitive advantage over the market. There is no single method, on the other hand, that can guarantee success. Before engaging in any trading or financial activity, always consult with your advisor.