Bear markets often create a sense of uncertainty in all investors. Especially for new entrants, the bear market is like the end of the world. During Bitcoin bull cycles, investors are almost certain to make a profit. In BTC bear markets like this, an unimaginable amount of pessimism emerges.
Overinvestment and disbelief
Kylin Network co-founder and strategic leader Dylan Dewdney said the two biggest mistakes investors make when feeling anxious are “One, over investing and two, not investing with conviction.” . According to data from Glassnode, investors made approximately 43,000 buy and sell requests in early May. This corresponds to a massive $3.1 billion in Bitcoin assets. However, the panic that caused these claims was the result of Terra’s collapse, where the market sank further. Bear markets occur when there is an overall decline in the prices of assets of at least 20% from their recent highs. For example, the current bear market has plunged BTC more than 55% from its November record high of $68,000. Bitcoin is changing hands at $25,000 at the time of writing.
What causes bitcoin bear markets and how long do they last?
Bear markets are often tied to the global economy, according to Nerdwallet. That is, they occur before or after the economy enters a recession. Where there is a bear market, there is either an ongoing economic collapse or an impending economic collapse. Essentially, a sustained price drop from recent highs is not the only indicator of an ongoing bear market. There are other economic indicators that investors still need to take into account. This will allow them to find out if there is a bear market. Some of the indicators include interest rates, inflation and unemployment data.
But the relationship between the economy and the bear market is even simpler than that. When an economy shrinks, there are widespread expectations that corporate earnings will soon begin to decline. This pessimism causes them to sell their holdings, thus pushing the market further down. As we reported at Kriptokoin.com, investors often overreact to bad news. In any case, bear markets are shorter than bull markets. According to a recent CNBC report, bear markets last about 289 days. However, bull markets can even exceed 991 days. Additionally, Invesco’s report shows the average loss in Bitcoin bear markets as 33%. Accordingly, the loss in bear markets is considerably lower than the 159% gain in the bull cycle. So how do you protect your investments in a bear market? Below you can find a few tips on this subject.
dollar-cost average (DCA)
dollar-cost average (DCA), where an investor regularly purchases a fixed dollar amount of a given asset defines an investment strategy. The strategy is based on the belief that prices will generally pick up speed over time. Also, the investment is expected to eventually show an uptrend during a bull run. According to James Butterfill, head of research at CoinShares, Bitcoin is currently inversely correlated with the dollar:
“This makes sense because of the emerging value storage features. But it also makes it incredibly sensitive to interest rates. What pushed Bitcoin into the “crypto winter” is, in general, the Fed’s ever-increasing rate hike rhetoric. Federal Open Markets Committee (FOMC) statements are a good indication of this. We can also observe a correlation between the release times and Bitcoin price movements.”
When mastering this prudent investment approach, the investor’s purchase price is averaged over time. That is, one can enjoy the advantages of buying at the bottom. He can also avoid investing all his savings at the highest levels of the market. After all, bear markets are good times to buy cryptocurrencies at the lowest price.
Diversify your crypto portfolio with Bitcoin and altcoins
For investors with a variety of assets in their portfolio, the impact of bear markets is less severe. In Bitcoin bear markets, the prices of assets often fall. However, there is no rule that every altcoin will fall by the same amount. Thus, this strategy ensures that an investor has both winning and losing assets in a bear market. Thus, the total losses in the portfolio can be minimized.
Defense stocks and bonds
In protracted bear markets, some companies, mostly small, can go bankrupt. Whereas, more established firms with stronger balance sheets endure tough conditions as needed. Therefore, anyone who wants to invest in stocks should go for companies that have been around for a long time. These are called defense shares. Accordingly, they are generally more stable and reliable in a bear market.
Also, bonds can provide investors relief during Bitcoin bear markets. This is because bond prices often move in the opposite direction of stock prices. That’s why bonds are an essential part of any near-perfect portfolio. It also relatively eases the pain of a bear market for the investor.
Index funds or ETFs
Some areas, including the utilities and consumer sector, are known to thrive in a bear market. Investing in these sectors makes sense, whether through index funds or exchange-traded funds (ETFs). This is because every index fund or ETF allows you to own shares in various companies.
Ignore the negatives in bitcoin and altcoin prices
There is no doubt that a bear market will encourage investors to flee and never look back. Their will and endurance will also be tested. But as history has shown, bear markets don’t last forever. Accordingly, the current market will not be like that. According to Hartford Funds, more than 26 bear markets have occurred between 1928 and now. Also, each of the aforementioned bear markets was followed by a bull market. So, after each bear market, it brought in more than enough profit to make up for the losses. That’s why it’s always good to take your mind off the current setback. Eventually, the bull markets you will witness along the way will surpass the bear markets.
Create an investment plan and be patient
As previously explained, there are great risks that come with bear markets. However, they also offer a good basis for success in the next bull run. But it all depends on good strategic investment planning that you are patient with. So whether you’re doing DCA all the time, diversifying into other assets, investing in ETFs and index funds or stocks, profits will be guaranteed when the market finally turns. Losing money is always a difficult issue to ignore. However, the best way to survive market dips is not to run away. Instead, concentrate on the wide variety of recovery options and stay calm.
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