One thing is for certain: the crypto market is always changing! In 2021, Bitcoin reached an all-time high of over $90,000 AUD, which saw an influx of new investors joining the space. 2022, however, has seen a huge drop with the current Bitcoin price sitting at just over $33,000 AUD. Many are calling it a bear market.
So in this article, we share with you some tips on how to stay safe during a bear market and use this downtime to set yourself up for long-term success. Let’s go!
WHAT IS A BEAR MARKET?
A bear market is a prolonged period of falling prices by 20% or more from recent highs, although this figure is not set in stone and can vary depending on market conditions. A bear market in crypto can be caused by a number of factors, such as:
- Excessive speculation and investor exuberance: When investors get too excited about a particular asset, they tend to push prices too high, too fast, which can create an unsustainable bubble that eventually pops, leading to a market correction.
- FOMO (fear of missing out): When investors see prices rising quickly, they may jump into the market without proper research, thereby creating a self-fulfilling prophecy where prices continue to increase simply because more people are buying. This usually starts a trend in which the same investors sell off their assets once they’ve made what they consider a considerable profit, which then starts a trend and pushes the prices down again
- Exchanges getting hacked: If a major exchange gets hacked and loses a significant amount of investors' money, it can trigger a marketwide sell-off and correction.
- Regulatory uncertainty: Any time there is regulatory uncertainty surrounding cryptocurrency, it can lead to a sell-off and corrections. For example, prices fell sharply when China announced it was cracking down on cryptocurrency in 2017.
5 TIPS FOR A CRYPTO BEAR MARKET
A lot of crypto investors think the best strategy is to time the market, trying to pick the tops and bottoms based on what you believe of the price in the future, then buying lump sums/ off selling to make returns. Of course, if you get it right you can see some huge returns but with a volatile asset like Bitcoin that has doubled many times in a short period of time, it can be difficult to do. Unless you are a highly skilled trader, timing the market can see you lose out quickly.
A safer option is dollar-cost-averaging (DCA), an investment strategy in which a person divides up the total amount to be invested across periodic purchases in an effort to reduce the impact of volatility on the overall purchase. By purchasing small regular chunks of Bitcoin, with its long-term potential in mind, it becomes less important whether the asset is in the short term going up, down or sideways.
It’s important to ensure you’re storing your cryptocurrency safely and securely. Leaving it on a third-party service such as an exchange, especially during a bear market, is extremely dangerous! You don’t own your private keys and are essentially given an “IOU” from the platform to store your coins with them. If the exchange goes bankrupt (which often happens when the market drops) there is a high chance the platform will not be able to afford to give every single person that trades with them their assets back. What happens to all of the crypto you’ve been securing on their exchange? Well, it disappears along with them!
So how can you ensure you are securing your cryptocurrency through a bear market?
By storing them on a cold storage hardware wallet. Cold storage hardware wallets allow you to move your assets offline AND keep ownership of your private key. Your private keys are generated and stored on the hardware wallet which is then protected by a PIN and an optional passphrase. The keys are never exposed to the internet so they can’t be stolen or copied. That’s why it’s known as cold storage. You and only you are in ownership of your assets.
If you are involved in the world of cryptocurrency, then you probably already know all about the slang term ‘HODL’. If you are new, however, you may have recently encountered this word in some form and are not aware of its meaning.
It was accidentally created when an online forum post back in 2013 went viral after a bitcoiner tried to say — supposedly drunk at the time — that he would be holding on to his coins. HODL quickly became an official term for not selling your crypto and rather holding onto it as an investment, even when the market dips.
To hodl successfully, patience is vital; you need to be in it for the long run! Hold onto your cryptocurrency with its long-term potential in mind, and resist the temptation to sell even as you see prices rising (or dropping!).
A bear market is a perfect time to increase your crypto knowledge without any buying pressure. It’s time to get stuck into the nitty gritty of crypto and blockchain technology, so you can gain valuable insights that will help you once the market starts moving again.
Unsure where to start?
Here are a few of our top picks!
- Coinstop Learn (we share weekly educational blog posts on all this cryptocurrency & blockchain!)
You can also always reach out to the team at Coinstop if you have any questions! We are dedicated to educating the community and creating a safe and supportive space.
It’s time to put all that you’ve learnt into practice! Learn from your past experiences/mistakes and set up a strategy and plan for your investments moving forward.
CONCLUSION
Let’s go over that one more time. Start purchasing Bitcoin in periodic purchases using the dollar-cost averaging method, move your coins onto a hardware wallet, settle in and HODL for the long run, and then learn and plan as much as possible for when the market comes back up. It really is that simple!
With cryptocurrency, you can own your hard-earned money rather than leave it to the mercy of a financial institution. And here at Coinstop, we want to help you secure your future! That’s why we stock the very best in digital security. From hardware wallets to recovery seed phrase storage devices, our products will help you to become your own bank. Cryptocurrency is the future, and it’s time to start securing yours!