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How to Survive a Bear Market in Crypto

When a bear flat-out refuses to go back to its lair, what should one do? Definitely don't hide out just yet. There are still profits to be made if you know where to look and what tools to use.

With bitcoin sparkling green across all charts, it’s easy to get dizzy and forget about managing risks when the tables turn. And even if this bear market is over, there will be another one before you can say "Jack Robinson." So, it’s best to fix the roof before it rains, or, in other words, learn how to survive before a bear knocks on your door.

Although bitcoin appears to be going strong and emerges practically unscathed from the last stages of a bear market, some experts continue to be wary. A renowned economist, Harry Dent, in particular, predicts the worst crash of our lifetime is yet to come.

In fact, according to Dent, the largest collapse of our generation would occur pretty soon, in mid-June 2023, with the S&P 500 crashing by 86%, the Nasdaq by 92%, and bitcoin falling by well … 95%. We certainly don’t want to create FOMO, but that forecast doesn’t sound encouraging, does it? So it’s best to be prepared.

In this article, we’ll explain what a crypto bear market is and how to survive it.

Crypto Bull vs Bear Market

The terms "bull" and "bear" are often used to characterize the market’s sentiment and price behavior. In this sense, if the general investor mood is positive and prices are rising, the market is referred to as "bullish." On the contrary, if prices are falling and investors are pessimistic, the market is said to be "bearish."

Here, we’ll talk about the latter — a gloomy outlook on the markets. As an example, consider the well-known cryptocurrency meltdown in December 2017, when investors saw bitcoin drop from $20,000 to $3,200 within a matter of days.

Crypto Bear Market Definition

It’s typically assumed that if prices fall by 20% and are still declining, the market is entering its bearish phase.

👉The word "bear" is said to have originated from the way bears fight, which involves rising high before striking and pushing a victim down.

There are multiple reasons for a bear market to happen — geopolitical crises, poor economic policies, market bubble bursts, and even natural disasters. A bear market may also be spurred by government intervention in the economy, like adjustments to the federal funds rate or the tax rate.

A decline in investor confidence may also portend the possible start of a bearish phase. When traders believe something big is about to happen, they act accordingly — close positions and sell coins to protect themselves from imminent losses.  

👉 Despite the discouraging sentiment, a bearish market presents unique opportunities.

Although it might be challenging for some traders to invest in low-value cryptocurrencies, especially when it’s unclear if they ever rebound, others are eager to buy at rock bottom. Indeed, a crypto bear market is a two-way street — you buy low and sell high when prices recover, or you buy low and never sell because your assets are worthless.

Thankfully, it’s never as straightforward as that. There are plenty of good coins that are almost as trustworthy as bitcoin itself, so there are always opportunities for a sound investment.

How Do You Identify a Bear Market?

As mentioned, a crypto bear market is one in which coin prices have fallen by at least 20% from their high. However, a 20% drop is arbitrary, just as a 10% decline is subjective for a correction.

Another way to look at a bear market is by watching investor sentiment: if investors are more risk-averse and avoid speculating in favor of safe coins like bitcoin, then chances are you’re in a bear market. Unfortunately, such pessimistic sentiment may linger for months or even years.

To better understand and anticipate a bear market, it’s important to pay close attention to the market life cycle and price behavior.

👉 For a general overview of the four stages in the crypto market cycle, refer to our article on the Wyckoff Method.

A bear market typically consists of four phases:

  • The first phase is defined by a bullish investor mood and high prices. Because of a prolonged bullish sentiment, investors continue to be confident about a quick comeback even if the price drops. However, as the market satiates and prices continue to fall, investors start to exist and cash in returns.
  • During the second phase, the market experiences significant downside movements but also recoveries. On longer time frame charts, huge red candles and relatively smaller green candles are the consequence of recoveries failing to fully offset the magnitude of the negative moves.
  • The third phase is characterized by a substantial downside and little to no upward movement in higher time frames. Investors stop denying the downtrend and start selling off large amounts of their assets. Despite "relief" rallies occurring on shorter timeframes, big recoveries are few and far between. However, as negative news continues pouring in, investors become less sensitive.
  • During the final phase, the market reaches the bottom, and the decline slows. The market price becomes attractive for buyers to open long positions. The overall market conditions are either consolidating or gradually improving.

Cryptocurrency Bear Market versus a Correction

When a broad market index (or an individual asset) falls by at least 10% from its recent top but by less than 20%, we call this a "market correction." But when a broad market index falls by 20% or more from its previous high, we call it a bear market.

Bear markets may last for years, but market corrections don't last nearly as long and occur more frequently.

How Long Can a Crypto Bear Market Last?

First off, it’s important to understand that bear markets are normal. For example, the S&P 500 Index has seen 27 bull and bear markets since 1928, and over the long run, stock prices have increased tremendously.

Secondly, bear markets tend to be short-lived. A traditional bear market typically lasts 292 days or approximately 9.7 months. That's much less than a bull market, which is 992 days or 2.7 years.

👉 Overall, the statistics for traditional bear markets look encouraging. Since World War II, bear markets have been less common. Moreover, in the past 20 years, 42% of the S&P 500 Index's strongest days have happened during not a bull but a bear market.

But why compare traditional and crypto markets? Well, for starters, the two have many similarities:

  • First, since the stock market has been around much longer, there’s a lot to learn.
  • Second, there has been a substantial correlation between cryptocurrency prices and those of the US stock market. So, the rise or collapse of the stock market is likely to have an effect on crypto.

Based on historical data, crypto bear markets typically run for 306 days and see a draw-down of about 61%, with a lot of sideways volatility in the months that follow. It might be different this time around since the world economy is entering a recession, and it's the first time a crypto bear cycle and a recession happen simultaneously.

How Do You Survive a Crypto Bear Market?

Although bear markets are unfortunate facts of life, you don’t have to be a psychic to take some sensible precautions to reduce your losses and boost your long-term investment gains.

Given the frequency of intermittent falls of five percent or more in the crypto market, it might take some time for investors to realize that a steeper decline is imminent. By the time their losses reach 20% or more, many become paralyzed by fear and unwilling to take action to protect their portfolio from long-term harm.

Others, on the other hand, become very greedy and make high-risk bets. It might be fine to take huge risks if you’re Warren Buffett, but since you’re clearly not, you need to be more cautious.

Although prices eventually stabilize and rise, it might take years or even decades for a wrecked portfolio to make a full recovery. So, it’s best to prepare and act diligently to preserve whatever coins you have. Below are a few tips on which strategies to employ:

Dollar-сost Averaging

Consistent investment over the long term can tilt the odds in your favor. DCA not only helps you invest regularly but also takes emotion out of the equation. Moreover, you can always adjust your DCA strategy if you see dramatic drops and use additional hedging mechanisms like Take Profit and Stop Loss to secure returns and minimize exposure.

Risk management

When allocating your portfolio, you need to consider all pertinent factors, including your age, financial situation, and risk tolerance. The key is to act according to your situation and not give in to inertia. Again, the best way to manage risk is to use hedging strategies like Stop Loss or Trailing Stop Loss and monitor your portfolio closely during the slump to adjust if necessary.

Diversification

Unsurprisingly, lower-risk coins have earned long-term returns on par with riskier ones. So some diversification into safe, value coins like bitcoin and ether, even if it is overdue and takes place during a down market, may pay off long after a bear market is over, especially for portfolios that are heavily weighted towards speculative coins.

Automated trading tools

Finally, you can employ automated trading bots for short-term speculation and long-term investment. Provided the bot is reliable and you analyze coins before investing, you have all the chances of exiting the bear market at a profit. Consider employing Bitsgap’s DCA and BTD trading bots to earn in a downtrend. But more on this is below.

Is It Possible to Make a Profit in Bear Markets?

Even in bear markets, there are opportunities to profit from trading. Day trading, Dollar Cost Averaging, and Buying the Dip are among the most popular strategies used to benefit from even the smallest price fluctuations, allowing you to build your portfolio with incremental gains every day.

Bitsgap has various tools available that may help you locate and take advantage of these favorable opportunities.

The Dollar-сost Averaging Bot

The DCA trading bot from Bitsgap employs the Dollar Cost Averaging strategy and divides your investment across periodic purchases or sales, depending on your position — either long or short. In a downtrend, you can utilize both; however, it’s generally assumed that for a falling market, shorting is best. Shorting allows you to sell your coins at a higher price, rebuy them later when the price slumps, and pocket the returns. You can learn more about shorting with DCA here and here.

The Buy the Dip Bot

The BTD bot uses the Buy the Dip trading strategy and slowly accumulates your portfolio while a coin’s price falls. The more the price drops, the more coins the bot buys. A bear market presents fantastic opportunities for amassing coins you always wanted to buy but at much lower prices. Learn more about BTD here and here.

When Does a Crypto Bear Market End?

It’s really hard to say. Although bitcoin and altcoins seem to be rallying, there are a few factors that still negatively affect the crypto market, including the overarching geopolitical instability. But let’s look at the facts.

Despite negative news coverage from Silvergate Capital’s bankruptcy and U.S. authorities initiating legal action against Binance, major cryptocurrencies recovered in March (historically considered the worst month for crypto).

At the same time, we saw USD Coin (USDC) briefly losing its peg to the dollar, New York state regulators shutting down Signature Bank, and other unfavorable events more or less connected with the downfall of crypto exchange FTX in November 2022.

👉 What to expect now? We believe that continuing liquidity difficulties and regulatory developments will likely have an effect on the crypto market, so you shouldn’t get too comfortable with the current upswing just yet.

Bottom Line: Don’t Fight the Bear, Instead — Make Friends.

A crypto bear market is no reason to FUD — instead, use it as an opportunity to diversify and de-risk your investment portfolio. Consider how much you have, what you can lose, how long it will take to get it back, and go from there. There’s always Bitsgap and its crypto bots that can help you survive a bear market and emerge from it not only unscathed but also considerably more well-off.

Crypto Bear Market FAQs

What Does Bear Market Mean?

A bear market happens when asset prices drop by 20% or more, which is often accompanied by a decrease in investor confidence and a gloomy economic outlook. Bear markets can be cyclical or longer-term. The former often lasts for a few weeks to a few months, while the latter might go on for years. Profiting from falling prices in a crypto bear market is possible with such strategies as short selling, Dollar Cost Averaging, and Buying the Dip.

What’s the Difference Between Crypto Bull and Bear Markets?

In a bull market, prices are rising, and investors are optimistic about the future. A bear market is the polar opposite. A rise of 20% typically signals the start of a bull market, whereas a drop of 20% — a bear market. However, cryptocurrency markets can undergo considerably quicker price changes than traditional markets and often experience drops or spikes of 50% or more within the course of a single day. Nevertheless, it’s worth paying attention to any price change greater than 20%, as it’s considered an industry threshold.

Is a Bear Market Good or Bad?

Markets move in cycles, and you have to go through all cycles before you exit into another bull market. This means if you’re an investor, you have to be prepared for both highs and lows. If you’re smart, you can profit from any market and under any circumstances.

When Was the Longest Bear Market?

The longest bear market for stocks ran for 929 days from 2000 to 2002. For the crypto market, it lasted 415 days between 2013 and 2015.

Is the Bear Market Over?

Based on past data, it doesn’t look like we’re completely through with the bearish sentiment. However, the crypto market changes and adapts very quickly. So, there’s still hope that the present upswing is sustained and carries prices over current support lines with only minor corrections.

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