The crypto market is bear-run, and the wash-sale rules no longer apply. No one can sugar-coat the fact that the crypto industry is having a rough period, and many projects disappeared from the market. However, it doesn’t mean that investors should stop putting money in digital assets because the bear market is a unique silver lining that could prove lucrative when the right strategies are employed.
We use the term bear market to define a market that lost over 20% of its value in a given year. Bitcoin and Ether, the largest cryptocurrencies by market cap, are down, and several other tokens are struggling to survive.
However, bear markets offer investors the rare opportunity to accumulate holdings and position themselves in a place that allows them to outperform. Sadly, few investors accomplish a feat during such a phase because many lack extensive knowledge of approaching a bear market. Not gonna lie; navigating a bear market is challenging because it requires sophisticated tactics.
This article provides extensive information about bear markets and helps investors determine if they should use their funds to buy digital currencies.
What does the bear market mean for the crypto sector?
We mentioned earlier that a bear market could be described as a period of decline in the value of cryptocurrencies. The general definition of this phase in traditional financial markets is of a time when the prices fall 20%, and the market experiences a negative sentiment for a long period. The crypto market often referred to as a crypto winter, is a moment of decline in the price of crypto assets that causes some projects to be wiped from the market because they struggle to find investors and users and meet the market expectations.
This phase starts with a demand-supply imbalance that places most market participants on the sell side. Bear markets are characterized by uncertainty and fear that cause the selling to outweigh the demand and trigger a significant decline in value. Cryptocurrencies fail to recover quickly from the decline, lose users, and register low highs for an extensive period. From a technical point of view, the time frame chart shows a series of lower highs and lower lows over a long period.
Mistakes to avoid during the bear market
This period is brutal for investors who lack experience. The fluctuations are quite violent during the bear market, and it’s not unheard of for some assets to lose 90% of their all-time high values overnight. Therefore investors (rookies and seasoned) must learn how to buy bitcoin online or other digital currencies during crypto winters because lacking knowledge could make them commit mistakes. Here is a list of common mistakes investors make during bear markets and how to avoid them.
Selling coins out of panic
Panic is an investor’s worst enemy because when you panic, you experience an intense sensation of anxiety and fear. The human body experiences panic as a response to some danger to make it take action to remove it. If panicked, you are more likely to lose control, logic, and common sense and make bad decisions. In the crypto environment, panic selling is an action of the widespread selloff of an asset because of rumor or fear that it’ll drop in value. All investment decisions should result from careful market analysis, not from a fear reaction.
During bear markets, you must invest based on objective thinking rather than emotions. For example, seasoned investors add Bitcoin to their portfolios during bear markets because it’s considered digital gold and has registered a positive evolution over time. You could invest in Bitcoin during this period because it allows you to preserve the purchasing power of your funds. Under no circumstances sell Bitcoin during times of economic turmoil because no asset ever went in a straight line. They all experienced bumps along the way, and you should be patient.
Being afraid to sell
While you shouldn’t allow panic to control your investment actions, this also means that you shouldn’t get too attached to your cryptocurrencies. Casting your ego aside and recognizing you made a bad investment could help you limit your loss in the long run. Crypto experts state that many investors get married to their bags because they’re too emotionally attached to their investments and refuse to sell.
Many people lost their finances in 2017 and 2018 when the ICO boom peaked because they failed to foresee where the market was heading. They were chasing higher returns on investment and ignored the sector’s signals that the assets were crashing. Many altcoins lost over 90% of their value and never recovered.
Mishandling emotions can often lead to overtrading because people engage in trading from the fear of missing out on an opportunity due to misreading an investment thesis or a strong desire to recoup losses. Overtrading is an emotion-based decision. Remember, the bear market isn’t the best place to allow your emotions to control your investments. The charts provide the necessary information to decide which investment is worthwhile.
Trying to time the bottom
As a newcomer to the crypto market, you might be tempted to time the bottom, especially during the bear phase. Seasoned investors state that they see it all the time, traders thinking that a particular asset still has room to go down and they’ll have time to buy then. This kind of thinking has two consequences:
– The currency does go down, but you never buy because you wait for it to go even lower
– The asset doesn’t go down, and you wait for another opportunity that is late to come.
During the COVID crash in 2020, Bitcoin’s price dropped, and some investors thought that the worst was yet to come, so they didn’t purchase coins. However, the cryptocurrency didn’t experience an economic disaster but instead registered a bull run in 2021.
No one can tell how long or what the effects of the bear market are, so it’s best to stay educated and informed. You can invest in small batches regularly and purchase popular digital currencies if you’re not a professional trader.