In most cases, for investors, bear markets usually bring about the feeling of uncertainty. Just imagine how it is for a newbie, for whom it can feel like the end of the world. It is a known fact that investors are sure to make gains during bull cycles. On the other hand, in bear markets, an unimaginable amount of pessimism sets in.
Bear markets happen when there is an entire dip in the prices of assets, mostly at least 20% from their most recent highs.
An example is the current bear market which has Bitcoin down by more than 55% from its November record high of $68,000.
Bear Markets
More often, bear markets are dependent on the global economy. In other words, they usually occur either before or after the economy goes into recession. As such, where there is a bear market, there is either an ongoing economic meltdown or an upcoming one.
In addition to the price dip of assets, there are other economic indicators that investors must still factor in. Asa result, they can learn whether a bear market is playing out or not.
Some of these factors include interest rates, inflation, and employment rate, among others.
Many investors always expect that corporate profits will soon start to reduce when the economy is shrinking.
Such pessimism makes investors sell off their assets, which pushes the market even lower.
However, bear markets last shorter than bull markets.
Navigating a Bear Market
As an investor, you probably cannot do anything to prevent such unfavorable market conditions or the economy at large. However, there can be ways in which you can undertake to protect your investments.
Understand that crypto markets are cyclical- Historically, we know that every bullish period is typically followed by a bearish period. The cycle is generally made up of four phases, which are accumulation, a bull market, distribution, and a bear market.
As such, prepare well for such periods. In most cases, bear markets last about 289 days, while bull markets can go even above 991 days.
Use market downtime to educate yourself- A bear market gives you time to learn more about crypto at a slower pace, setting you up for the next bull market. Familiarize yourself with the requisite resources for investing, trading, and buying projects. Get to do your research broadly.
Use dollar cost averaging to your advantage- Instead of trying to time the bottom perfectly, traders can lower their average overall buy cost throughout a bear market to position themselves favorably.
Focus on the long term- Many traders develop a long-term plan that is not influenced by short-term fluctuations in the market. It also ensures they neither buy more assets than they can afford nor run out of liquidity when they want to purchase.
Final Thoughts
There are huge risks that come along with bear markets. However, they also offer a reasonable basis for success in the next bull run. However, such success is joined to a sound investment strategy and patience.
As such, profits are assured when the market finally turns around. Even with activities slowing down during a bear market, it is still necessary to continue, whether through DCA or by spending the time to learn more about different facets of crypto.
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