5 tips to survive a crypto bear market

Updated: Nov 3, 2021

Since the creation of Bitcoin in 2009 the cryptocurrency space has not only grown but it has evolved and matured to become the trillion dollar market that we see today. Bitcoin, Ethereum and other established crypto coins and tokens are slowly but surely being given the recognition that they deserve and the “funny internet money used by terrorists and drug dealers” narrative is slowly diminishing.

The sector has clearly demonstrated over a 12 year period that these assets have and continue to be the best performing assets the world has ever seen. The market is however very cyclical in nature, which can be extremely disconcerting for the average investor. So, in this article I will give you some tips and advice how you can best survive a crypto bear market as a newcomer to the space.

What is a bear market?

Financial markets that experience either sustained periods of growth or substantial growth are called bull markets, whereas the opposite where markets experience sustained periods of decline or substantial declines are called bear markets. Each presents its own set of opportunities and pitfalls

Regardless of what market it is, be that cryptocurrency, stocks, real estate, or any other asset, markets are invariably characterized as either being in a bull market or a bear market. Simply put, a bull market is one where the prices are a rising and a bear market is one where the prices are declining. Due to the inherent nature of markets they invariably experience periods of volatility and that can be experienced day-to-day or even during much lower times frames of hours or even minutes. However in the context of bull and bear markets these terms are generally reserved for much longer periods of mostly upward or downward movement in price.

When considering traditional markets a significant upward or downward swing in price of 20% within a 60-day period is the regarded as the accepted figure that denotes the market conditions. However, when compared to these markets, cryptocurrency markets are smaller and thus more volatile. Therefore, it is quite common to see stronger and prolonged crypto bear markets, where 85% price drops are not that rare. Even in a bull market cycle having the price of a cryptocurrency coin or token drop 50% is not unheard of.

Any downturn in a market is indicative of investor pessimism related to a loss of confidence in the overall performance of the market prices and indexes. In response to pessimistic market sentiment, investors start selling their holdings, further impacting the falling prices and often leading to capitulation periods. Pessimistic investors who believe prices will continue to fall are, therefore, referred to as “bears.”

It’s notoriously difficult to predict when the bear market might end and when the bottom price has been reached — as rebounding is usually a slow and unpredictable process that can be influenced by many external factors such as economic growth, investor psychology, and world news or events.

So, what is a bull market?

A bull market, or bull run, is defined as a period of time where the majority of investors are buying, demand outweighs supply, market confidence is at a high, and prices are rising. If, in a given market, you see prices quickly trending upwards, this could be a sign that the majority of investors are becoming optimistic or “bullish” about the price increasing further, and may mean that you’re looking at the start of a bull market.

Investors who believe that prices will increase over time are known as “bulls.” As investor confidence rises, a positive feedback loop emerges, which tends to draw in further investment, causing prices to continue to rise.

The price of cryptocurrency assets is influenced considerably by public confidence and sentiment in that particular asset. This can lead to significant “pumps” in the price of particular cryptocurrency coins or tokens on the back of news events or speculation that something significant is going to happen.

When does a bull market end?

Prices don’t go up in a straight line; even in the midst of a bull market there will be fluctuations, dips, and corrections in price. Many novice investors who check the price continually often misinterpret short-term downward movements as the end of a bull market, which is why as an investor it is important to consider any potential signs for a trend reversal from a broader perspective and looking at price action over longer time frames.

Over time it has been demonstrated that bull markets don’t last forever, and at some point, investor confidence will begin to decline — this can be caused by a variety of factors including bad news like unfavourable government legislation to unforeseen circumstances like the COVID-19 pandemic. The consequence of there being a big downwards movement in price can be the catalyst for a bear market, where more and more investors believe prices will continue to fall, causing a downward spiral as they sell in order to prevent further losses.

Crypto is still in it’s infancy

In the grand scheme of things given the scale and complexity of the crypto landscape and the numerous industries different privately run projects are looking to disrupt the sector as a whole is still in its infancy and this is reflected in the market volatility. The market has however endured 3 bull to bear market cycles and each time the skeptics have been proven wrong. Bitcoin keeps getting stronger; the adoption rate and acceptance of the technology has continued to accelerate; and the overall belief in what can only be described as a technological revolution continues to gain momentum.

In terms of its progression and growth in many respects the cryptocurrency market is where the technology sector was in the mid to late 90’s. During that period there was a frenzy amongst both retail and institutional investors to throw money at any new tech company that had Dot Com in it’s name. When the bubble finally burst between 1999 and 2000 the majority of those companies simply disappeared.

The market however is very good at dictating the fate of those who succeed and those who ultimately fail. Fast forward 20 years and the survivors of that period have gone on to become the household names that we know today, namely Apple, Google, Microsoft and Amazon to name just a few. But what people fail to appreciate is that during the turbulent market conditions that were experienced between 1999 and 2000 those same companies saw their share prices plummet: Apple fell 67%, Microsoft fell 66% and Amazon fell an incredible 95%. Yet these companies have since gone on to become the behemoths that they are today.

Naturally there were people during this time who made the wrong bets and quite possibly lost a lot of money. Those investors however who made the right choices and had a steadfast, long term belief in these tech giants, and weren’t shaken out of their positions following the big dips in price have subsequently been rewarded extremely handsomely. From the low prices seen in 2000: Apple increased 150,000%, Amazon increased 58,000% and Microsoft increased1,800%.

So why am I saying all this?

As a firm believer in freedom of choice and the dynamics of free market capitalism one aspect of cryptocurrency which I find empowering is the fact that it allows anyone the ability to have sovereignty over ones assets. Simply put anyone can make a decision to buy cryptocurrency assets, hold them in their possession and they can’t be confiscated or meddled with by governments or third party entities. Hopefully if the investor makes the right choices and they then subsequently make the right decisions regarding timing, there is a good chance that they will make life changing money.

In addition there are very few barriers to entry in crypto. You don’t need a lot of money to participate and you definitely don’t need to be an accredited investor, unlike the big boys club on Wall Street that only allows certain people to benefit from really big returns on assets as most of us mere peons are seen to be unworthy members by virtue of not being able to satisfy their wealth criteria. But does money really equate to someone being financially astute? I don’t think so. The chances are those who were able to benefit from investing in Apple et al right from the start probably already had money and it was only during the era of the tech bubble, years after their launch, were the retail investors able to participate and they were then effectively dumped on by the institutions.

By becoming an investor who has sovereignty over ones investments and with no third party middleman to moan at or blame when things aren’t going well, one has to be prepared to put on some big boy pants and accept responsibility. This unfortunately is where newcomers to the space sometimes fall down.

Without question the cryptocurrency space can be extremely intoxicating, especially during a bull market phase. It can be very alluring for newcomers to blindly jump on any money making bandwagon and start investing in a seemingly complex and technical space that is made all the more sexy and attractive by social media content.

Humans however are somewhat flawed, which can be to their detriment especially when it comes to money. We can be greedy and the harsh reality is that we have an innate tendency to be lazy, lack critical thinking and simply follow the herd, especially when there is the belief that easy money can be made.

So during a bullish period of a market cycle the space comes alive with positivity and there can be an overwhelming belief that prices will simply keep going higher and higher. But as I have already stated it doesn’t work like that. Due to the volatile nature of the market although prices can go parabolic and people do become extremely rich very quickly, prices fall even faster. The saying goes “prices take the stairs on the way up, and they take the elevator on the way down.”

When the crypto market turns bearish it can be quite shocking to those who had ridden the wave of euphoria. If however you are a serious investor there are a number of things things that you can do to ensure that you survive the drastic change in market conditions.

Survival tip #1: Investing should be for years and not months

If you have an investment time horizon or months and not years then you are essentially gambling. Whilst bull markets are fun times bear markets can present the very best opportunities. If your investment strategy is longer-term, buying during a bear market can pay off when the cycle reverses itself. One of the simplest and most effective strategies that crypto investors can employ is dollar-cost averaging. This is in where you invest a set amount of money (say $50) every week or month, whether the asset is rising or falling. This distributes your risk and allows you to invest through bull and bear markets alike.

Consider this:

  • If you had bought $10 of Ethereum every week for the last 5 years you would have spent $2,610 but you would now have $100,280 of Ethereum

  • If you had bought $10 of Bitcoin every week for the last 5 years you would have spent $2,610 but you would now have $29,312 of Bitcoin

There are no certainties with investing and as the cryptocurrency market is somewhat speculative, only ever risk an amount of money that you are comfortable losing.

Survival tip #2: Holding alt coins in a bear market is extremely risky

Altcoins (alternative coins) is a term used to describe all cryptocurrencies other than Bitcoin. Their name comes from the fact that they’re alternatives to Bitcoin and traditional fiat money.

The first altcoins launched in 2011, and, by now, there are thousands of them. Early altcoins aimed at improving aspects of Bitcoin such as transaction speeds or energy efficiency. More recent altcoins serve a variety of purposes depending on the goals of the developers.

Altcoins have become a big part of the market, however they do come with certain risks attached to them which needs to be given consideration especially in a bear market.

There is without question money to be made investing in altcoins, but there’s also money to be lost. This is true with almost any investment. But altcoins come with their unique set of risks.

One of the main attractions of holding altcoins is the hope that you uncover a hidden gem that will be the next big thing. I call this an asymmetrical bet, essentially you risk a little to win a lot, you are able to turn a few hundred dollars investment into millions.

By virtue of the fact that altcoin projects are relative small their prices are much more volatile than the likes of Bitcoin and Ethereum. Many novice investors are simply not equipped to manage this type of volatility. It is undoubtedly fantastic when the price is going up, but when they fall they fall extremely hard and unless the project has extremely strong fundamentals and a great team the attrition rate among alt coin projects in a bear market is extremely high. I would estimate that over 80% of alt coin projects simply fail during this period.

It doesn’t mean you should stay away from altcoins altogether. In fact they can also be a source of diversification for more traditional portfolios, but this diversification must be handled with great care and time should most definitely be spent researching them thoroughly. Because of the sheer number of them, it’s challenging to pick out the best altcoins to invest in and those that will withstand a bear market. Altcoins present a greater risk, and many of the smaller altcoins without proper research can turn out to be dubious investments or even scams.

Taking on too much risk isn’t recommended, so even if you decide to buy altcoins, they should only make up a small part of your portfolio and you must be prepared for a complete loss during a bear market.

This leads me into my third survival tip.

Survival Tip 3: Do your own research and don’t listen to Youtubers!

When you are investing take it seriously; at the end of the day you are risking your hard earned money, so show an interest in what you putting it into. If you can’t be bothered to take the time to do some research then you might as well just go to the casino and spin the wheel on a roulette table.

As I have already mentioned your investment thesis should be a long term one which is probably quite boring if I am being honest. However the interesting and exciting part of investing is constantly learning and growing.

If you are new to the space and it all seems a little overwhelming learn about the basics first and then as you build your confidence and knowledge start researching projects in areas that you are interested in. For example, you might like to play video games, therefore you may naturally gravitate towards those projects that are involved with NFTs (non-fungible tokens) as they are starting to play an increasing role in online gaming.

Don’t fall into the trap of listening to Youtubers and without thinking just buy a cryptocurrency because it has been hyped up by one of them. Remember they are entertainers and not financial advisors. More often than not if they are shilling a particular project it is either because they are being paid to do so, or they want their audience to help pump the price because they hold a big bag of it themselves.

Tip4: Don’t fall for FOMO

FOMO is an acronym for ‘fear of missing out.’ The fear of missing out on good things in life is a genuine reaction for many people. It’s that little voice in your head that is trying to convince you that “everyone is having more fun than you.” In the context of cryptocurrency investing it’s telling you “you’re missing out on the massive gains being had by many good investments.”

FOMO is a serious issue in the cryptocurrency community, and if you either suffer from it or you are tempted by it as you are prepared to listen to the little voice in your head and then act on it, this can lead to bad decisions being made. FOMO is the kind of mentality that leads to people making rash investment decisions such as participating in ICOs that turn out to be scams; by people buying something that they have no understanding of; or by making irrational buying or selling decisions in moments of panic

Investing should never be an emotional act — if it is, you’re doing it wrong.

Tip 5: Don’t chase shiny objects

The crypto space is unfortunately full of investors who are very inexperienced. With so many projects to choose from and so much noise emanating from social media, many fall into the trap of trying to chase the latest trends, the biggest gainers and all the latest coins, instead of focusing on a well defined game plan and what they are best at so as to try and get the desired results. This is referred to as ‘shiny object syndrome’ and if you want to become a successful investor you should really try to avoid it.

I find the space very interesting, so personally I am always open to learning about the latest blockchain technology and keeping up to date with what is trending. But this doesn’t necessarily mean that I will immediately make an investment if it doesn’t fit with my overall investment plan.

Many people in the space make the mistake of not having a plan and instead they spend their time chopping and changing from one coin to the next in the hope that they will strike it lucky. This type of behaviour is synonymous with someone who is thinking that they can get rich quickly. This approach may prove to be lucky on the odd occasion but it is definitely not sustainable in the long term.

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I'm Paul

I am on a mission to help people start a journey to financial freedom. The key to long term success is education and understanding the incredible opportunity that exists right now.

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