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In the crypto world, you must have come across the term “bearish”. In this article, we’ll be looking at what a bear market is in crypto; its meaning, example and tips to survive the market trend.
What is a Bear Market in Crypto?
This is a period in the market where crypto prices are experiencing a constant decline in price or they are expected to happen. This is when the value of cryptocurrencies has fallen by at least 20% and continues to fall.
Pessimistic investors who believe prices will continue to decline are called “bears.” Bear markets can be challenging to trade – especially for inexperienced traders.
It’s quite difficult to predict when the bear market might come to an end and when the bottom price has been reached — as recovering 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 certain events.
It is the opposite of a Bull Market.
What Causes a Bear Market?
Usually, a drop in investor confidence signals the start of a bear market. This is when investors believe something is about to happen, therefore, they take action—in this case, selling off their crypto to avoid losses. Asides from this, there are other things that cause the bear market.
- Lower trading volume: This is when people have started to hold their coins due to unsureness in the market.
- Negative opinions from traditional finance: For example, when JPMorgan CEO Jamie Dimon called Bitcoin a fraud in 2017, only months before Bitcoin reached $20,000and then crashed swiftly.
- Changes in the federal funds rate: This refers to the rate at which banks lend/borrow their excess reserves overnight.
Features of Bear Market
The following are some characteristics we usually identify in a bear market;
- Decreasing prices over a period of time
- Supply is more than demand
- There is no investor confidence in the market
- No talk or sometimes, negative talk of crypto in the mainstream media as well as social media
- General wariness in cryptocurrency among economists, analysts and the traditional financial market;
- Lower highs in the event of good news
- Lower lows in the event of bad news.
Example of a Bear Market
The first and most famous bear market was The Great Depression which occurred from August 1929 – 1939.
A recent example from the Indian stock market happened between the period of March 2015 and February 2016 where Sensex dropped by more than 23%.
Tips To Survive in a Bear Market in Crypto
1. Do not try to predict when the bottom:
Nobody can predict the bottom. You can study technical and fundamental analysis or listen to experts, but at the end of the day, you may still have to rely on your gut feeling while trying to time the bottom, which makes the risks worse and is not really reliable.
2. Apply Dollar-Cost Averaging method:
Dollar-Cost Averaging (DCA) is arguably one of the best strategies proven to have worked well even during the toughest of bear markets. Basically, it is a long-term strategy where you keep buying small amounts of an asset over time regardless of the price.
This is a good way to earn a passive income from your crypto stash. The practice of staking simply refers to locking away your coins for a period of time on a proof-of-stake (PoS) blockchain and getting rewarded for it.
The bear market is inevitable in the crypto world. For every long period of crypto price pumps, a fall should be expected, that is what balances it out. However, timing this is really risky and could affect your investment.
Trading in this market can be quite difficult but not impossible. With enough research and knowledge of the crypto market, you can make the most out of your investments in all crypto market trends.