Remember the silhouette challenge that trended on Tiktok last year? Where people posted videos that started normally but transitioned into dark red filtered videos. Now imagine that concept but with a collage of different cryptocurrencies, displayed in red to represent their collective fall in prices, and you may have a mental picture of what this article is about.
What is a Crypto Bear Market?
A crypto bear market is a continuous and collective decline of the prices of different cryptocurrencies in the market over a given period. The crypto market is more commonly said to be in a decline or a bear season when the market has lost more than 20% from its recent All-Time High (ATH), and this decline stretches for about a span of two months or more.
This idea stems from the traditional finance concept of selling a large number of shares with the assumption that the prices will fall so that profit can be made by buying the shares at lower prices. To combat this occurrence, there is a rule called “Wash Sale” that disallows people from selling an investment for a loss and then quickly rebuying it. An investor under this rule can only rebuy the same asset 30 days after he has sold it. However, the cryptocurrency market is decentralized, where people can keep buying or selling an asset depending on their confidence in the asset and as long as there is liquidity.
Bitcoin, for instance, fell perpetually from its position at $42,702.38 on 4/21/2022 to $21,109.46 on 6/21/2022 with its lowest position in that period at $17,744.9— CoinMarketCap. This market movement indicates about a 50% price loss over the course of two months. Technical analysis of other cryptocurrencies like ETH, BNB, and XRP over this period will bring you to the conclusion that we are in a bear market.
Bear Market vs. Bull Market
The concepts “bear market” and “bull market” that characterize market movement are not homogeneous to just the crypto-sphere. It is also used to classify the stock market, real estate market, and other markets where assets are tradable.
A bear market is characterized by an overall market decline but can also define individual assets or commodities that experience steady and significant price declines. It is when the supply of assets is greater than the demand that people who believe that prices will continue to drop sell as a way to mitigate losses.
During this period, investors lose confidence or are “bearish,” meaning they have negative market sentiment and lose confidence in the asset's profitability.
A bull market is the opposite of a bear market, and it is a period when the market enjoys upward movement, signaling a steady and significant price increase. Supply is greater than demand as investors continue to buy the asset because they are bearish, believing that the price will continue to increase.
It is important to understand that despite the perpetual downward market movement in a bear market, there are periodic and temporary price spikes, and even when there is a continued upward market movement, there are temporary dips. You would have to zoom out the chart and get an overview of the market over a period of time to determine what kind of market is in effect.
A number of factors, such as economic growth or recession, market sentiment, news, and world events, can influence how markets perform, making it hard to predict when a market cycle will end.
I know you must be wondering why these concepts are named after animals. People speculate that the origin is linked to the fighting nature of the animals. Bears are known to claw at their prey downward while bulls thrust their horns upward towards their opponents.
What to Do During a Bear Market
Bear markets typically run for approximately a year, but in extreme cases, it might take up to three years for prices to retrace back to their all-time highs. Despite the significant losses that are sustained during a bear market, there are possibilities for both short-term and long-term investors who seek to profit from the seemingly hopeless scenario. We have curated some tips you may consider when you find yourself in a bear market.
Do not panic and sell all your assets for a loss right away.
Columbia University professor and economist Laura Veldkamp, notes that the bright side is that the market has historically bounced back from every single bear market. Bitcoin has been around since 2009 and has had a number of bear markets. Holders of large numbers of bitcoin valued in millions today have had to hold on to their assets in the good and bad days.
Buy the dip!
You have always said you wished you bought a crypto asset when it was cheaper. Well, the bear market presents an opportunity to buy at a cheaper price. Just remember to do so using dollar-cost averaging, or make use of indicators to find the best entry points. The market can be very volatile and unpredictable, so don't rush to invest all your money.
Invest in a variety of assets to diversify your portfolio.
In a bear market, different assets have varying loss percentages and retrace their losses at different rates. You'll be able to recover more quickly and minimize your losses if you spread out your assets.
Stable coins like Tether (USDT) and Binance USD (BUSD), which are pegged to other currencies like fiat, are ideal investments. It's also a good idea to put money into utility tokens and cryptocurrencies that have practical applications, such as Chainlink (LINK), Basic Attention Token (BAT), and Binance Coin (BNB), because these are more likely to see a quick recovery due to their widespread use in cryptocurrency transactions.
Read Also: Buy The Dip Explained
Hopefully, the current bear cycle will end soon, allowing us to focus on exploring new opportunities and unlocking new aspects of web3. In the meantime, maintain a strategic position and keep an eye out for opportunities that may arise as you navigate the world of cryptocurrency.
I/we have no positions in any asset mentioned, and no plans to initiate any positions for the next 7 days