Many investors, especially those who started their crypto journey and made profit after November 2021 when the market experienced a general bull run have been frustrated with what might be their first bear market or crypto winter in 2022.
Investors have been faced with bothering questions like should I buy the dip? how can I make money in a crypto bear market? what should I do in a bear market? Are there any strategies to make money in a crypto bear market? what digital asset should I hold during the bear market?
Even the recently concluded Ethereum Merge popularly known as Ethereum 2.0 which moved Ethereum from the proof of work mechanism to a proof of stake hasn’t made as much positive impact in the market as we expected.
The event was one of the most anticipated events in the crypto space which had over 41,000 people join the watch party on YouTube.
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In this article, we are going to take a look at the crypto bear market, see how it compares with the bull market and show you 5 ways to make money in a bear market. After reading this content, hopefully, you will be able to know how to take advantage of the crypto bear market.
If you are not familiar with what a bear market is, I will give a brief definition of it below.
What is a crypto bear market?
To put it very simply, a crypto bear market is a period of a downward trend in the prices of cryptocurrencies in the market. When the market drops by over 20% over a sustained period, usually above two months, the market is said to be experiencing a bear run.
In a bear market, there is typically more supply over demand, and investors usually lose confidence in trading. It is quite difficult to predict the end of a bear market since it is influenced by several factors.
It is often easy to confuse a crypto bear market with corrections. While corrections are a short-term fall that lasts for not more than 2 months, a bear market however extends more than that and lasts for a longer period.
With the steady falling market, it is quite difficult for investors to regain their losses, unless they apply some strategies which we will be talking about later in this post. Although every bear market ends up with a corresponding bull run, not all affected portfolio recovers fast enough and some don’t recover at all.
What causes a crypto bear market?
As I mentioned earlier, a crypto bear market is caused by several factors. This is a question that has several answers, so let’s take a look at some of the reasons below:
- Negative news: In the crypto space, when there is negative news and comments from traditional financial and media sources, it usually brings about a downtrend in the price of cryptocurrencies and further negatively affects the market in general.
- Regulatory changes: Though cryptocurrency is becoming a popular phenomenon, lots of countries in the world still haven’t accepted it as a form of payment. Some countries have partial acceptance, while others accept cryptocurrencies as a legal form of payment. Check out the top 7 countries with the most cryptocurrency users.
When regulations that hinder cryptocurrency transactions are made, they negatively affect the crypto space and significantly cause a drop in the entire market prices. - Reduced trading volume: When traders lose confidence in the market, they close trades and hold on to their assets which in return reduces the market trading volume.
What is a crypto bull market?
With a clear understanding of what a bear market is, and also factors that may trigger it, it is quite easy to understand what a bull market is.
Simply put, a crypto bull market is the direct opposite of a bear market. A bull market is a situation where the prices of assets rise significantly or are expected to rise shortly.
As opposed to a bear market, a bull market is one where the prices of assets increase above 20% over a given period. A typical example of a crypto bull run was back in October and November 2021 when the price of Bitcoin reached its all-time high of $68,000 alongside other crypto assets experiencing a significant rise in their prices.
What can cause a bull market?
Contrary to bear markets which are triggered by negative news, a bull run is triggered by positive news and comments rocking the crypto space. Some of the factors that can trigger a bull run include:
- Increased demand over supply
- Increased consumer’s confidence in the market
- Overall economic strength
5 ways you can make a profit in a crypto bear market
We have established what causes a bear market and also see how it compares to a bull market. This section is where we will answer your questions about whether can I make money in a crypto bear market. The simple answer to this question is YES.
However, the profits wouldn’t just roll out and add to your portfolio, there are strategies you are expected to follow. While lots of traders prefer to remain active during a bull market, there are opportunities to make money during a bear market.
The strategies to make a profit in a crypto bear market are listed below:
- Buying the dip or Dollar Cost Averaging (DCA)
- Invest in stablecoins
- Margin trading crypto or Trading with leverage
- Crypto staking
- Crypto yield farming
1. Buying the dip or Dollar Cost Averaging (DCA)
Since a bear market is a time of low prices, it is practically an ideal time to buy more assets and add to your portfolio. The practice is what is known as “buying the dip.” It makes sense since you will be buying at a very reduced price and then you can sell when the bull market comes at a better price than you bought.
Dollar-cost averaging is a strategy that involves investing money in assets in an equal amount over time instead of going all in at once in a bulk investment. By doing this over time irrespective of the price, you are averaging out the impacts of short-term volatility and also securing a stronger position in the market.
We can use a simple example. Let’s say you are willing to invest a total of $10,000 in a particular asset, instead of going all in at once with the lump sum, you can split your investment into purchasing $200 worth of that crypto every two weeks regardless of the price of the coin in the market. You will eventually spend your planned $10,000, but you did it with reduced risks and with discipline.
2. Invest in stablecoins
Stablecoins are altcoins whose values are fixed or pegged to that of a fiat currency like the U.S dollar. Not all traders are ready to start trading during a bear market. If you are not experienced with the bear market and want to reduce inflation on your assets, your best bet will be to invest in stablecoins.
There are several such coins available in the market including, Tether USDT, USD Coin USDC, Binance USD BUSD, and others like TrueUSD TUSD and USDD.
Holding stablecoins will help give you a good return on investments, especially during a bull market. While this might not generate you massive income, it is also a good way to make a profit during the bear market as it doesn’t matter how the crypto market price moves and you won’t be risking anything.
3. Margin trading crypto or Trading with leverage
This is one of the popular ways to make money in a bear market. Simply put, margin crypto trading involves borrowing funds from a cryptocurrency exchange and using such funds to trade.
This is also referred to as trading with leverage because it involves leveraging the borrowed funds to increase your profits exponentially. This strategy can be very risky though. Since margin trading involves the borrowing of funds, there are additional fees that will be factored into each trade position.
You are always advised to do your research before involving in any form of strategy. In general, margin trading crypto is a great way to make profits during a crypto bear market.
4. Crypto staking
This is another good way to make money in a bear market. Crypto staking could be likened to the banks’ traditional “Interest-bearing Savings accounts.” The difference however is in the larger income return rate.
Crypto staking is also similar to receiving dividends for equities. Crypto staking involves holding or locking your cryptocurrency to support operations on a network. By doing this, you grant permission to the network to use your cryptocurrency through the proof of stake mechanism to carry out a series of transactions, verify transactions, and secure the blockchain and in return you earn profit.
With the upgrade of Ethereum from proof of work to a proof of stake mechanism, you could say that staking your Ethereum will be a very good way to make a profit even in the crypto bear market.
5. Crypto yield farming
This is kind of the opposite of margin trading crypto. In this case, instead of you borrowing funds from crypto exchanges to trade, you are lending crypto to exchanges for reward/profits.
Yield farmers don’t need to lock their crypto in this case unlike in staking, you can move your asset from one mining pool to another. This is good because not only is your idle crypto working for you, but you are also contributing to the growth of decentralized finance DeFi.
Conclusion
Even with the negative outcome of the crypto bear market, there are still ways to make a profit which include crypto staking, stablecoins, and dollar cost averaging, among others. Since the market is volatile, it usually bounces back after a bear run.
If you are a big fan of HODLing, you should keep up with it, but if you are curious and want to earn profits on your idle crypto, then you should consider trying out one of the strategies above.
While everyone around you is panicking and getting worked up about the bear market, you will already be familiar with and know how to make positive outcomes from the negative trend.
Disclaimer: The views and opinions in this post are solely of the author of the content and in no way a recommendation. You are always advised to do your research before investing in cryptocurrencies as they are known for their high level of volatility.
Victor Swaezy
Victor Swaezy is a crypto-journalist with more than 3 years of experience in covering blockchain technology and digital currencies news. Known for his comprehensive reporting, Victor has contributed to leading industry publications such as Coinfomania and Crypto News Guru, providing market participants with the required knowledge to make informed decisions. When he is not working, he loves to watch movies and have a good time.