Bear Market Crypto Strategies to Navigate Downturns

In November 2021, Bitcoin was valued at over $67,500. Just a year later, it sat at only $15,000 – a 77% loss. These low prices continued for another 13 months and were also mirrored in other cryptocurrencies.

Watching a turnaround as drastic as this can be scary for many investors. But it’s important to remember this kind of change occasionally happens due to the cyclical nature of the economy. And there are ways to navigate it.

Let’s look at four key bear market crypto strategies you can use to navigate this and future downturns.

Related: What is a Crypto Winter?

What Is a Bear Market?

A bear market is an economic downturn. While there are other terms that signify a downturn, such as a crypto winter, there are specific conditions that indicate a true bear market. If asset prices decrease by 20% or more from recent high points and stay low for a long time, we are in a bear market.

While prices may occasionally fall by high-teens percentages at times, these are not technically bear market conditions. 

The opposite of a bear market is a bull market. This is when asset values are elevated for prolonged periods of time.

While bear markets may seem categorically depressing for an investor, they are normal. The market goes through cycles of highs and lows, and the lows are often just as healthy as the highs. 

The key is being able to spot a bear market and adapt your strategy accordingly.

Signs of a Bear Market

Luckily, you’ll often be able to spot a bear market when we’re in one by paying attention to the crypto market. The easiest sign to spot is that asset prices have decreased significantly for a protracted period of time. In most cases, it’s by more than 20%.

When this happens, investors will generally lose confidence, leading many newer investors to leave the market. You’ll also hear about bad news and doubt and fear spreading through the market. This, in turn, lowers asset prices even more.

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Are We in a Crypto Bear Market?

Crypto prices have been low for much of 2022, continuing into 2023. Yes, we are currently in a crypto bear market. The current bear market started around mid-2022.

In January of 2023, the price of Bitcoin jumped by 28%, leading some to wonder if a return to a bull market was on the way. While this may be a positive sign, some experts warn that it could be a bull trap instead. During an uncertain period like this, it’s important to continue to exercise caution and prepare in case the downward trend returns.

Past Bear Markets

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Since cryptocurrency became popular, there have been a couple of other bear markets. The first significant one was from Q4 2013 to Q4 2015. Bitcoin was at a high of $1,236. However, bans and scandals led it to drop to only $103.

Around this time, China completely banned crypto, while the FBI shut down the Mt Gox hack. Ethereum’s launch and Japan’s introduction to crypto trading and initial coin offering are thought to have led to a turnaround.

Another downturn began in Q4 2017 and lasted until Q4 2018. It began when Bitcoin reached a max of $19,279 before dropping to $3,242. This happened when the Federal Reserve increased interest rates, and Coincheck suffered a hack. The downturn ended thanks to the NFT boom and PayPal’s crypto use.

Bear Market Crypto Strategies

It’s virtually impossible and not recommended to try to beat a bear market. However, there are a few strategies that can help you weather through and come out okay on the other side.

Related: What Causes Crypto to Rise & Fall?

Dollar-Cost Averaging

In a downturn, prices drop, making it a possible opportunity to buy assets at a good value. But it’s impossible to time the market perfectly. Luckily, you can take advantage of the downturn through dollar-cost averaging.

DCA means making set, smaller purchases of equal amounts overtime on a regular basis. This is in contrast to making irregular and larger buys. This strategy allows you to add to your holdings while reducing the average price of each asset. You don’t need to worry about specific timing while still taking advantage of a lower cost basis.

Focus on Long-Term Goals

While you have your own goals and reasons for investing, many people invest in digital assets for long-term goals. This is where a buy-and-hold strategy can help weather the storm.

Big swings will happen at some point, whether month to month or year to year. But it’s more important to look at the big picture. A large dip doesn’t necessarily matter if it recovers in the end. The loss only really sets in when you sell at a loss. 

While it may be scary to hold on to assets while prices drop, remember what your overall long-term goals are. Consider these before evaluating any changes in your strategy.

Don’t Panic

Panic doesn’t offer any benefits in investing; you need to keep a level head. When you panic, you open yourself up to poor decisions that are often avoidable. 

Unfortunately, the news and social media can become places of runaway negativity. They’ll become saturated with fear, uncertainty, and doubt in a bear market. While it may be easy to get wrapped up in it, you must stay focused and take the news with a grain of salt.

Related: How to Value Crypto to Know What to Buy?

Diversify

Diversification is a key strategy to navigate downturns in any market. And there is a variety of ways to do so. You could invest in other types of assets, such as real estate or stocks. You can also diversify the types of crypto you invest in.

Just be sure to always ensure the projects you are investing in are legitimate. Some tricksters promise high returns but don’t deliver on them. Always be wary of high-risk crypto projects. You should never invest money you can’t afford to lose, no matter what the market looks like.

Navigate a Crypto Downturn

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A bear market can be a scary situation for crypto investors. But by knowing the signs of one and how to identify current market conditions, you can be more prepared. 

Make sure to utilize bear market crypto strategies such as diversifying, dollar-cost averaging, and evaluating your goals to better weather a downturn.

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