If you’ve had the curiosity to look at crypto price charts lately, you’ve probably noticed that things aren’t looking too rosy for the crypto squad. Bitcoin, the enduring front-runner, is down by more than 20% since the start of the year, dipping under $70K, and it’s taken most other coins along for the ride. It is also estimated that the crypto market has lost somewhere between $1.9 to $2 trillion since its October peak. Analysts believe the fall to be the result of a combination of global stock sell-offs, geopolitical tensions, and increased volatility in the price of precious metals.
While this downturn is certainly unfortunate and unsettling for market participants, it’s not in the least surprising. Bitcoin and its ever-growing suite of altcoins have fallen in the past, not once but numerous times. That has never stopped the market from moving forward, and has definitely not stopped investors from pouring their money into crypto assets.
At the same time, one can’t ignore the fact that investment risks, which are already quite high for crypto, become even higher in a bear market, even if you invest in a top cryptocurrency, which is generally regarded as a safer option, and conduct your trades on platforms like Binance that offer comprehensive risk management tools, whether you can learn how to buy USDC or any other coin.
This might get you wondering if buying crypto during times like these is still a good idea or if it’s best to hit the pause button for a while and wait for the market to recover to resume your trading activity.
Potential scenarios
The only way for you to decide which course of action would be better is to take into account different potential scenarios. Let’s say you continue to add crypto assets to your portfolio and prices continue to drop. That means you could see your profits drop considerably and end up with a rather large hole in your investment portfolio. This usually happens when you don’t have a clear plan and don’t know how to manage risks properly (e.g., you have an imbalanced portfolio with more crypto exposure than it’s prudent).
On the other hand, when crypto prices plummet, you have the opportunity to apply the buy the dip, sell the rip strategy, which is quite common among crypto investors. This implies purchasing assets when their value drops and then quickly selling them when they experience a spike to secure a profit before the price falls again. This might be a risky move, as there is no guarantee a surge will ever come. But many have used this technique successfully over the years and have managed to generate notable returns by executing it carefully.
You can also adopt a long-term approach and buy the dip without selling the rip. This is a strategy that focuses on accumulation, also known as HOLD or HODL (Hold On for Dear Life), where you basically purchase assets during a market decline and hold them in the long run, betting on their appreciation potential. The purpose is to build wealth over time instead of chasing short-term gains.
HODL works best with coins that have a strong track record and have demonstrated their resilience, such as market leader Bitcoin. The crypto has appreciated by more than 23,000% in the past decade, so those who bought it early and held onto it throughout the years were rewarded with sizable gains. So, now that Bitcoin is more accessible, you can take advantage of the downturn to purchase it at a lower price and increase your holdings. Then all you have to do is sit and wait for the market to follow its course.
Again, there is no certainty that the market will bounce back, and it’s also unlikely that Bitcoin’s early-day spikes will ever repeat since the asset is more mature and institutionalized. But if we judge by its historical performance, all the data suggest that Bitcoin’s value will continue to rise, despite the temporary setbacks, and the same could happen for other recognized cryptos.
With the regulatory landscape for digital assets becoming clearer and more organizations and institutions entering the crypto space, there might be a bright future ahead for Bitcoin and many of its altcoin peers.
If you do decide to invest, you should…
… diversify. It’s a tale as old as time: a portfolio that contains different types of assets with different risk profiles protects you against excessive losses caused by the underperformance of any of these products. Essentially, you spread risks across various investments instead of relying on just one instrument to carry your returns and ensure the health of your portfolio.
… set stop loss orders. This is a risk management technique that every savvy investor should consider, regardless of how the market is behaving, but it becomes even more crucial during bearish phases when price drops tend to be sharper and losses more severe. Stop loss orders trigger automatic sales when the price of an asset hits a pre-determined level. This ensures that potential losses are limited, so you don’t run the risk of having your earnings wiped out by a falling asset and sudden price swings, which are more intense and frequent in a bear market.
… stick to established cryptocurrencies. There’s a time and place for testing out investment strategies and venturing off the beaten path. A bear market is not it. This is when you should focus on what you know and stick to safer investments. Reputable coins like Bitcoin and Ethereum, which have larger market caps, or stablecoins, which tend to be less volatile, are your safest bet. You can also invest in riskier assets, but make sure you keep these allocations as low as possible.
In the end, deciding if you should purchase crypto in a bearish market is a personal decision that you should take after carefully evaluating your options and establishing clear goals and boundaries for your investment strategy.
