Should You Invest in Crypto During a Bear Market?

• Blockchain Council
• October 10, 2022

The crypto explosion over the past few years has opened up a whole new world. As major companies and industries worldwide are beginning to see, cryptocurrencies and their related technologies offer incredible benefits in terms of financial efficiency, privacy, and security. It is no surprise then, that many people have been desperate to invest in crypto and hitch their wagon to what appears to be the financial solution for the future. However, in such a new industry, and one loaded with such heavy jargon, it can be difficult to know if you’re making the right move. One term used often in crypto circles is ‘bear market’. What is a bear market? Read on to find out and get some other top tips for crypto trading.

What is a bear market?

All markets and stocks experience highs and lows, peaks and troughs. It’s what makes them such attractive and potentially lucrative investment options. If a shrewd investor can time his move carefully, purchasing when stocks are low then selling when they’re high, he can make significant returns on his investment. A bear market is the term given to a market that is seeing sustained declines in prices. Typically, a market is said to have become a bear market when the stock market index drops by 20% or more after a period of recent highs. Bear markets can be concerning times for stockholders, it represents a shrinking or declining market, and can be influenced by a range of both internal and external factors, including economic problems, war, or geopolitical tensions.

Thankfully, bear markets tend to be short lived, lasting less than 10 months on average. This may seem like a lifetime to those who have just seen the value of their stocks plummet, but there is some comfort in knowing that the rocky period shouldn’t last long. For the potential crypto investor looking to start trading in digital assets, a bear market can prove a tempting opportunity to secure some currency at low prices. What’s more, if a bull market was to follow, the potential financial returns could be substantial.

What is a bull market?

A bull market is the total opposite of a bear market. It’s the name given to a market that is seeing an extended period of growth, with the stock market index rising by 20% or more. Bull markets can be triggered by periods of strong economic growth and are often seen in times of low unemployment and increased investor confidence. Bull markets represent opportunities for significant returns for those looking to sell, particularly if stocks or assets were bought when prices were low, like during a bear market.

Crypto investing during a bear market

Crypto is no different to traditional stocks and assets, in that it too sees wide variations in market value, with clearly identifiable periods of bear and bull markets. Choosing to invest in crypto during a bear market can prove to be a shrewd and strategic move. However, to do so effectively, you’ll need to be aware of the different stages seen in a typical bear market, when to invest, and what to invest in.

The preliminary stage of a bear market occurs immediately after assets have hit their peak value. This is followed by what’s known as an early-stage bear market, where financial downswings are evident, but recoveries take place due to lingering investor confidence following a healthy and stable period. When values begin to fall quickly and recoveries stagnate, this is what’s known as a fully-fledged bear market. Investors sell off assets quickly to minimize loss and companies can go bust. Finally, a late-stage bear market is when falling values begin to slow and hit their bottom peak, this is where most buyers will come in to start securing assets at cut prices.

When deciding what to invest in during a bear market, the usual rules still apply, but you’ll need to follow a more stringent risk avoidance strategy to ensure you make returns on your investments. Market leaders like Bitcoin or Ethereum are always a good choice for investment during a bear market, you might not be able to buy as much of them as other currencies, but you’ll still get them at a reduced rate, and they are the most likely to grow in value quickly as the market recovers. Other altcoins may prove to be a tempting choice during a market downturn, but these can often see slow-to-little recovery and can be a less than wise investment choice. If you do choose to invest in one of these currencies, be sure to do your research. Check out the project, the community, and the whitepaper to ensure the coin will recover when the market begins to grow again.

Conclusion

Markets can be volatile, with crypto being no exception. Knowing what can happen during a bear market is essential, while being aware of the unique investment opportunities these periods offer can allow the shrewd investor to make serious profits if he makes the right moves.