What is a bear market and how to deal with it as a new investor?
A bear market is when the price of an investment drops at least 20%, this metric was created for the stock market but like everything related to the stock market, it was adopted to the cryptocurrency market as well.
A bear market may affect an individual market/currency for example when the price of bitcoin is down at least 20% then we can say that BTC is in the bear market territory, and it can also affect the market as a whole, like if the market capitalization of all cryptocurrencies fell by 20% or more then the entire market is in the bear market territory.
While the phrase bear market may strike fear in the hearts of investors, in reality, the bear market is healthy and a good investment opportunity for a lot of people who have the guts to trade and purchase assets in this market.
One other reason which makes a bear market healthy is that it bursts bubbles in a gradual way instead of a whole market crash. Meaning, that when the market sentiment is bullshit on a certain asset this makes this specific asset desirable to traders even if the asset is at the top of its real value which makes this specific asset overvalued and in the bubble territory. When a bear market hits, this means that a correction of this asset’s price happened and now it is valued at its actual value or even slightly less, which means that the asset and the market as a whole self-corrected and the risk of a total crash have been averted, not only that, it opens the door for more investors to get into the market and revalue this specific asset which is considered as an upward correction of the asset value.
For example, Bitcoin may have been overvalued at USD 69K but at the current price of USD 19K bitcoin is definitely undervalued, and as the market sentiment matures and passes the fear period, the price of BTC will correct upwards making a profit for everyone who bought in at the current price.
But How can I invest in a bear market?
There are many investment strategies that can be used in a bear market and we’ll list a few of them.
1- Dollar-cost averaging.
We all tried to buy at the market’s bottom, but how many times did that work for you? Personally, almost zero times, you can’t decide when is the bottom of an asset no matter how much you try, and even if it worked out for you once or twice there’s no guarantee it’ll work forever.
So how to deal with that? By using dollar-cost averaging, which is putting money into the market gradually, for example, $10 each week for 3 months. This way you can ensure that you bought the asset at an average price with much less risk than trying to figure out the market’s bottom.
Diversity holding
Like trying to figure out the bottom of an asset is almost impossible, figuring out which cryptocurrency is a winner and which is a loser is not easy and often is an act of pure luck.
Some assets/cryptocurrencies increase while others decrease and vice versa, even in a bear market each asset still increases and decreases according to its investors and specific circumstances. But using the old proverb “ don’t put all your eggs in the same basket”, holding a diverse portfolio is your best chance at achieving a decent average profit over all of your portfolios without losing on a single asset.
Invest in cryptocurrencies with real-world projects
Not all cryptocurrencies have real-world use, some of them are just virtual projects, others are meme coins that are entirely fan-driven, and even though having a real-world project isn’t the only way a cryptocurrency can succeed or stay afloat, often and especially in a bear market those projects offer the most safety.
For example, Futira Coin is backed by a real-world project which aims at connecting Africa to the internet. And even though Futira Token like all other coins in the market did get affected by the bear market, the fact that it is backed by a real-world project means that the currency is currently undervalued and as soon as the next upward correction happens, gains are expected to flow to all who invested and held their FUT, same can be said for most other cryptocurrencies, but the projects with real-world assets would still be the safest and in a bear market the safety of our investment is the most important, because even if all assets will increase in the correction, it’s not guaranteed that all of them would stay afloat until this happens.
