In order to make money with crypto, traditional wisdom says you need to buy low and sell high. That’s all very well, but the question which gets asked most is how do you know when it’s time to trade, especially in a bear market? It’s hard enough predicting where a bottom might be, let alone trying to figure out where a top is.
1) Buy crypto with cash - not debt!
2) Buy for the long term - but also have a short term outlook.
3) Invest in projects you believe in.
4) Keep learning.
5) Dollar cost averaging - buy more as the market slumps.
6) Use a tool to protect your crypto from losses.
Bitcoin is currently in the midst of a bear cycle which began around the start of 2022 - some might call it a crypto winter, as BTC plummeted around 75% from the previous all-time high set in November of 2021 to the most recent low.
However, there remain a huge number of people who believe that Bitcoin, and other crypto’s, will continue to rise in value, especially as the traditional financial markets continue to melt down through rising inflation, rate hikes and a lack of liquidity in the financial markets.
In order to protect yourself, it’s useful to have a strategy - and sometimes not just one strategy but many strategies, for the short, medium and long term.
In this article, we’re going to break down some ways in which you can protect yourself and your wallet during crypto bear cycles.
There’s an old saying that you should “only invest what you can afford to lose” and nowhere is that more important than in the crypto world.
Cryptocurrencies are notoriously volatile, which is great when you’re holding and the price is heading upwards, but less so when the market drops like a stone.
Unfortunately, many new crypto enthusiasts, particularly those who are just starting out, sometimes purchase tokens with borrowed money, including credit cards, bank loans and more, often with the idea that they’ll make a fast profit and pay off the capital they borrowed. This is a really bad idea, and it’s never a good idea to do this, especially so during a bear cycle.
Purchasing crypto with a long term outlook (more than a couple of years) is a solid strategy, and doubly so when you’re buying during a bear cycle.
Veteran investor Warren Buffet is accredited with saying that investing in the stock market “was a device to transfer money from the impatient to the patient”, and this is as true in the crypto world as the traditional financial markets. Be patient and don’t expect to be a billionaire in a few short weeks!
That said, it always pays to have a short term view too. Being able to spot when markets are ready to cool off can be the key to making extra profits - but only if you can find the right time to enter or exit a trade.
If you bought a token with the intention of making a quick profit on a rip, then it’s highly recommended to learn how to lock in profits - don’t get greedy, or you could end up being a bag-holder. (see tip number #6 on this article for more on this!)
With thousands of different cryptocurrencies you can choose from, it’s difficult to know whether the new token you’ve found is one which is a potential 1000x moonshot, a lame duck or a total scam.
You’ve no idea whether you’re about to invest in a soon-to-be highly profitable unicorn or a total lemon, so learning everything there is to know about a project could mean the difference between making a healthy profit and getting utterly Rekt.
This could mean getting stuck into reading the project’s Whitepapers, or it could be as simple as just watching videos or reading articles which present the information in an easier to understand format.
But probably the most important factor in choosing to buy a specific token is making sure it’s something you believe in and you think has the potential to solve a real world problem.
If you don’t think it is something which would have value to you (or at least can’t see how it would be useful to someone else), then it’s probably not a great project.
Ultimately, if you feel that it could be useful in some way to humanity, then it may be a winner. But still, do your research - and ask questions!
It’s also highly recommended that you become a member of, and get involved with, the projects community. This will not only assist you in quickly understanding the project, but also connects you to like-minded people, and you get the inside track on how well the project is doing and you’ll generally get access to news and updates quicker than most of the rest of the crypto-sphere.
A good, solid project will have a community which allows you to chat, get support and ask questions, usually using an app such as Telegram or Discord.
Check the projects website and you’ll normally find links in the footer for their community.
Knowledge is power, and those that have it tend to have a massive advantage.
Things can move very fast in the crypto world, and not only will you feel much more comfortable when you’re adding to your understanding, but you might even pick up some incredibly useful information which will help you to better manage your portfolio, or even make better investment decisions.
There are a plethora of excellent online resources you can use to grow your crypto brain, and one of the best things you can do is to find a community where you can ask questions and get answers from knowledgable people. Remember, ever expert was once a noob!
Finally, remember crypto is not a regulated industry, and there’s no ombudsman or central governing authority you can appeal to if something goes wrong, so it’s important that you have a solid understanding of how to store and protect your crypto assets, alongside a strategy for both picking a token to invest in.
When the market is sinking, it’s tempting to sell to try to prevent further downside losses. When you’re looking at your wallets value and it’s lower than where it was when you started, you are currently experiencing an “unrealised loss”, where, although it’s down, you still have the crypto assets, and you may well be back in profit soon. So don’t automatically dump your tokens and instead think carefully about whether you’re ok with turning your “unrealised loss” into a “realised loss” (in other words, you sold, at a loss and now it’s permanent!).
That’s not to say you should always keep holding no matter what, but ask yourself if you can wait to see if the market will rebound, because markets oscillate - in other words, they move up and down all the time.
Dollar cost averaging is when you continue to purchase more tokens at a lower level when the price dips. This has the net effect of lowering the average price you paid for all of your tokens.
For example, imagine you bought 100 tokens of XYZ coin at $1 per token on Monday - your Dollar cost is, of course 1$ per token in total.
However, by later in the week, the price bombs down to $0.80, and you decide to buy 100 more tokens at the lower level. Now you have 200 tokens and you’ve spent a total of $180, making your average price of each token $90.
This is what’s meant by Dollar cost averaging down - continually buying more when the price dips thus reducing the average price you paid across your entire portfolio whilst increasing your position.
There’s a few tools you can use to get out of trouble when the markets aren’t going your way.
You can of course manually sell your tokens if you think the price is heading down, or use a “stop loss” order on an exchange, which will automatically place a sell order for you if the price reaches a particular threshold.
Do be aware though that selling either manually or via an automated stop loss means you may miss out on potential profits if the market rebounds after selling your tokens.
Furthermore, you’ll need to keep your tokens on an exchange if using an automated stop loss, and as just about everyone knowledgable about crypto knows, this is really not the best plan (if it’s not your keys, it’s not your crypto!).
You could also consider hedging strategies using an Options desk. Buying Put Options can be a good way to recover losses in the event of a drop to the downside.
However, Options desks can be pretty complicated, and they can also be quite expensive too, as your paying a premium every time you use them - and buying Options doesn’t mean you protect your existing tokens, but rather you’re opening a gamble (which needs to be paid for up-front) that doesn’t actually protect the value of the tokens you’re holding in your wallet.
One other method is by opening a crypto price protection position using Bumper, which is a simple to use and generally much more price-efficient DeFi solution.
Bumper protects the price of your crypto if it goes down, letting you exit with stablecoins at the value of your chosen floor once the position closes. But if the price goes up, well you just take your original crypto back. It even works if the price drops below the floor and then back up again (as many times as you need).
Bumper effectively removes the downside volatility from your crypto, and ensures you’re always protected. And not only is it a useful tool in a bear market, but it can be used to lock in gains even during a bull market too.
There’s a lot to Bumper’s crypto price protection, and it’s a unique and powerful way to protect yourself, and even profit, in those nasty bear markets.
Want to find out more about how to protect your crypto from dumps? Check out Bumper and find out why this is the tool every crypto hodler has been waiting for!
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Risk management in financial markets is far from straightforward and nowhere is this more true than in cryptocurrency markets. Bumper's novel crypto price protection protocol aims to simplify and revolutionise risk markets in the DeFi age.