How to make good in bear markets
So, what is a bear market and what causes it?
A market in which assets lose more than 20% of their value over a period of at least two months, is considered to be bearish. A sustained decline in the value of assets can happen for one or many of the following reasons:
- A sudden catastrophic event
- Declining profits
- A downward correction from over-evaluated asset prices
- A financial crisis which ripples through the market
- Fear and negative investor sentiment
Most people shy away from bear markets, because they believe that the upside is simply not there or not enough to realize sizable capital appreciation or gains. A bear market signifies a downturn or downward movement of value of assets. The typically risk averse investor either has exited long before he or she finds oneself in one or hodl until the markets are in the green again. This article explores various strategies of making good in such a market.
Anybody can make a profit in a bull market, but a bear market is where you can learn the most and lay the groundwork for future profits. There are a couple of strategist we employ in a bear market namely:
Shorting or Short Selling
This is the opposite of buying and then waiting to sell when the price is high. Typically a trader borrows the coins to be sold and sells them at market price, then buys the coins back to return the initial volume of coins borrowed from the broker/exchange. The most advantageous situation would be to initiate a short position at a high price and close at a low price, thus selling high and buying low. This kind of method is used for hedging portfolios and reducing risk and can be especially useful in an extended downturn. This technique can be risky however when the price starts going up unbounded and resulting in liquidation. The margin for error in this method is wafer thin.
Swing trading is about making use of microtrends. Within the candle sticks of price movement there are peaks and valley. An experienced trader can analyze trends using various stochastic tools and indicators like RSI. Market volatility during market crashes presents the best scenario due to the best local optima available. This method is undertaken by traders experienced in technical analysis and high risk tolerance.
This is a short-term strategy similar to margin trading, along with the inherent risks. Typically in scalping a trader can make anywhere between 10 and 100 trades hence making small profits in the process.
The volatility of the crypto market makes it possible to rake in profits even in a bear market. The cumulative nature of the small profits will then be sizable.
This strategy is recommended for traders who don not have a big appetite for risk. It involved staking ones crypto assets to earn an annual interest return. The more coins one stakes the more one is likely to earn from the mining process.
One could for example also consider investing in a master node which is much cheaper in a bear than in a bullish market.
Then there is the concept of value investing (first developed by two professors Benjamin Graham and David Dodd from the Columbia Business School) and was later popularized by Warren Buffet.
As a value investor, the strategy is long-term and is about investing in the value of a project rather than just the value of the asset. A bear market can afford an opportunity to procure more of the prized assets at a much lower cost and then hodling till the markets are back into bullish mode again. With lowered crypto asset prices, one can make periodic fixed amount investments over a period of time to bring down the average cost of one’s holdings and shorten one’s portfolio recovery period. This approach is called “dollar-cost-averaging” which will see one acquiring more assets as the cost goes down and fewer when the price goes up.
DeFi Bull Fund is a good alternative to trying these strategies on one’s own. The BRC will be staked through proprietary AI and algorithms to give the best returns to our investors even in a bear market.
That having been said, by being pegged to and invested in high growth new projects, even a bear market can see decent returns for investors who invest through DeFi Bull Fund BRC tokens.