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Investing in a Crypto Bear Market – What to Do & How to Invest | NDAX

Jul 04, 2022
byNDAX Labs

How to Invest in a Crypto Bear Market

Throughout the past couple of weeks, the global crypto world has gone through a substantial crash. The value of Bitcoin was brought down to late 2020 levels — and while this is by no means a small market cap, the price hikes of the past two years have practically been erased.

This crash has, naturally, resulted in a ripple effect felt by crypto companies and investors around the world — leaving many unsure of the best course of action for the future. So, what does this crash mean in the short term — and what does it say about the future of crypto in general?

For starters, it’s important to note something: while many crypto skeptics have been quick to point to this crash as some sort of proof of crypto’s infeasibility, the reality couldn’t be farther from that.

Over the past decade, crypto technology has evolved beyond any single blockchain — even Bitcoin and Ethereum. No matter which popular blockchain projects fail or which cryptocurrencies lose value, crypto is here to stay.

In times of trouble such as these, it’s even more critical for long-term investors to remain calm, stay the course, and look at the situation from a long-term perspective despite the current market volatility.

And that’s exactly what we’re going to unpack in greater detail right here!

The telltale signs of a bear market

Before we start looking at how things will likely unfold in the long run, it’s important to answer one question you might have heard being repeated over and over in financial publications — is crypto currently a bear market? And just what is a bear market anyway?

To put things simply, a sector or an industry is in a “bear market” when prices of a prime asset keep declining after a price drop for a considerable time period, instead of bouncing right back as they would in a “bull market”.

In the context of the cryptocurrency market, we can safely say we’re in a bear market after the crypto prices don’t bounce back after a 20% drop. And when the top assets — like Bitcoin — experience a significant price drop, mid-cap, and small-cap assets go through the same thing due to the high price correlation.

So, a bear market means demand is lower than the supply, prices are going down, and so is investor confidence. That last part is especially true for crypto markets, whose majority of investors tend to run for the hills at the first sign of trouble.

However, that’s not necessarily how you should behave during a bear market. If you can accurately gauge when it’s a good time to “buy the dip”, you can actually make a fortune by investing in a bear market.

Is crypto in a bear market?

So, considering all the above, the question is — are we in a bear market right now?

In a word: yes. At its all-time high, the global crypto market capitalization stood at around $3 trillion. Right now, it’s around $900 billion. And the market cap of BTC (Bitcoin) dropped by half from it's all-time high reached last November.

The same is true for the price of Ether, the world’s biggest altcoin, — and coupled with the crash of the Terra ecosystem, we can safely say that cryptocurrency holders are in the throes of a full-fledged bear market. A lot of investors are worried — but this isn’t necessarily a time to worry, at least not if you’re in crypto for the long haul.

Run and gun investors that are looking to make a quick buck at the next Bitcoin price hike definitely have a lot to lose. And a bear market is scary for older market players and newcomers alike — no one enjoys seeing their portfolios’ value go down.

However, this also means plenty of assets are currently traded at a discount — and if you’re convinced about the great future prospects of a specific crypto asset and its blockchain has a bunch of viable use cases, this could be your chance to enter the market cheaply.

Also, bear markets may traditionally be considered a good chance to short assets by some traders because of the large price drops. Still, considering the high volatility of the crypto markets, shorting assets is a trading practice best left to the most experienced traders. The two questions you’re probably wondering about right now are — should I invest in crypto right now? And does crypto have a future? Before answering, let’s delve into how we got into the current bear market in the first place.

The origins of the current crypto crash

In many ways, the recent crypto crash has been the result of a perfect storm.

First, we shouldn’t underestimate the uncertainty that’s been present on a macroeconomic level, and slowly spreading throughout all markets. The current geopolitical crisis as a result of the war in Ukraine and the pandemic has left many fearing a deep recession — creating uncertainties among investors who would otherwise be more eager to enter the crypto market.

On the other hand, we’ve seen the arrival of numerous innovations in the crypto world and for many of them, the current crisis is something of a stress test. There’s been a lot of positive buzz around algorithmic stablecoins, for instance — but the fall of Terra attracted just as many skeptics, inspiring a loss of confidence in stablecoins and crypto in general.If you’re interested in learning more about the events that led to the current crypto crash and how to navigate it, Bilal Hammoud, the CEO of NDAX, wrote all about that in the context of the Canadian crypto market. However, the lessons he has for Canadian crypto investors are applicable to pretty much any crypto market in the world.

How to approach the crypto bear market

If you want to make the most educated, intelligent decision you can, there are a couple of things to do when deciding on investments in a bear market.

First of all, while online investment advice is plentiful and there’s a lot of information to process, it’s always crucial to do your own research. In times of crisis, DYOR is the best principle you can turn to.

Second, make sure you’re not making any uncalculated, emotion-based decisions. Don’t let fear rule you — people that blindly follow the wave of the market are rarely winners in the long run. Try to assess your financial situation and the state of the market calmly, and don’t make any panicked financial decisions.

Generally, it’s a good idea to increase your emergency fund if possible, and calculate the runway you have. Also, this isn’t a great time to be playing around with leverage or taking on any more personal debt.

When it comes to specific cryptocurrencies, if you decide to hold — you might as well think about staking it, if your assets have a staking function in the first place.

And finally, above all else — do a lot of research! Bull runs aren’t the only time you need to look for awesome projects with tangible potential. If you’re certain of the project, the team, their vision, and their realistic milestones — it might still be a good idea to invest now, while it’s cheap.

Of course, you still need to avoid needlessly hyped coins that don’t have any practical value and projects fuelled by pop culture and influencer marketing.

The future of crypto is still bright

If there’s one key takeaway from the current situation, it’s this: the future of crypto is still as bright as it ever was. In fact, these crashes might wipe out some value in the short run — but if you’re playing the crypto market as you’re supposed to, you’re playing the long game here.

The only projects that completely disappear are harmful innovations and unstable pipe dreams executed by bad actors — in other words, stuff you weren’t supposed to trust in the first place. Some of the biggest innovations in crypto have been established in bear markets, like staking, remittance, and DeFi in general.

It’s not always a great idea to listen to the doom and gloom that you can see on mainstream media outlets — these are the same places that hype the market when it may arguably be the worst time to invest in it: the near-the-top booms when the prices are at their peak.

Ultimately, there will always be scammers and fraudsters in any financial system. However, cryptocurrency still has a future, because DeFi, smart contracts, and myriad other legitimate use cases are clearly improving the world.

As always, you should never invest more than you can realistically afford to lose — and you should only go for projects that you’ve thoroughly researched and you genuinely believe in. Don’t look for quick financial gain, as the projects promising that will fail as soon as short-term investors start fleeing during the next bear market.

Regardless of whether you’re thinking of selling or investing, avoid making decisions based on fear, hype, or any other emotion — and you’ll get through bear markets such as this eventually.