In association with
A bear market phase can be a major hindrance for traders and investors who seek to earn a fair amount of money from the crypto market. As a crypto trader, you look at the numbers on the chart, and you feel your investments slipping away. You only have one question in your mind: how do bears profit from this situation?
Getting off the bear market is not easy when the prices of cryptos are falling more than 20% (yup! That’s when we officially consider a downtrend as a bear market phase). Especially now, when the crypto market is experiencing a bearish downtrend, and the top cryptos have witnessed their prices plummeting by more than 70-90%, traders find it hard to control their nerves. However, as the adage goes, “every cloud has a silver lining,” you can make most of the bear market by adopting these trading strategies:
#1 Dollar-Cost Averaging
You watch a deep valley on the price chart. You wait for days for a trend reversal, but the situation worsens. You think you have no choice but to sit back and watch your investments drown when suddenly you remember you have a backup plan. You have some stablecoins or some fiat currency!
The crypto asset market is highly volatile. In times when bears dominate, you cannot be sure whether the price will plummet more or there will be a relief rally. During this time, you can make use of DCA or a dollar-cost averaging strategy. DCA helps you to spread your investments by investing small sums of money.
You can divide your funds, say Rs.50000, into small sets like Rs.1000 and buy a particular crypto or many cryptos when the price falls to your target. Instead of spending your entire funds at once, you can decide on specific time intervals to buy the dip. If, in the future, the price dips further, you can buy the cryptos using the allotted money so that when the price rises, you can reap huge profits.
#2 Diversification of Portfolio
While Warren Buffet may call Bitcoin ‘rat poisoned squared’ (though his company indirectly invested in it recently), his advice on diversification is worth noting. He says, “diversification is protection against ignorance. It makes little sense if you know what you’re doing.”
Diversification helps diminish the risk in your pool of investments. Supposedly, looking at the tremendous growth of Bitcoin, you had invested all your funds in the world’s largest crypto. Now, in a time of a downtrend, you may suffer losses.
Instead, you can allocate your funds to different cryptos so that if the prices of any of them rise or fall, you know you have not hit rock bottom. Even if no bearish force is acting in the market, diversification minimizes your risks and promises a certain degree of profits.
One cannot be sure about the nature of cryptos and their price trajectory. More than 17,000 cryptos are traded in the market. You have to study the market well before choosing your basket of cryptos to diversify your portfolio and minimize the loss. A few factors to pay attention to while choosing your basket include the potential growth of the crypto, history of price movement, and the highest price the crypto has been traded at.
#3 Staking
Blockchains like Cardano (ADA), Polkadot (DOT), Solana (SOL), and others allow their holders to stake in their network. Staking is locking up your cryptos on a network to become a validator (for validating transactions) on a particular blockchain and earn rewards.
Cryptos that use Proof of Stake (PoS) consensus allow for staking in their platforms. Transactions are validated on the network using the PoS mechanism, just like miners do in the Proof of Work (PoW) consensus. Wherever a block is validated on the blockchain, you get fresh new tokens.
Staking allows for passive earning via your crypto holdings, which you can use to cover your losses in the bearish market. It results in locking up your cryptos; hence you avoid panic selling. However, locking up takes away the liquidity of the crypto.
If you want to keep your holdings liquid while you stake them, you can opt for liquidity staking. Liquid staking earns you a derivative token in staking your crypto. Platforms like Lido Finance facilitate decentralized liquid staking. You can use these derivative tokens to either sell them on decentralized finance (DeFi) platforms to earn more tokens or sell them in the open market when the price of the crypto rises.
#4 Yield Farming and Liquidity Mining
Under yield farming, you as a crypto holder provide your cryptos to the decentralized finance (Defi) platforms. This increases the liquidity of these platforms, and you become a liquidity provider. A liquidity provider earns rewards on the platform that are generally given out from the earnings of the decentralized platform.
For instance, you deposit your cryptos in Uniswap, one of the biggest DEX. In depositing your cryptos in the Uniswap Liquidity Pool, you become a liquidity provider and hence eligible for earning rewards. Apart from the rewards, Uniswap also gives you UNI tokens, which are native tokens of the network, for free. This concept is known as Liquidity Mining.
Both the techniques earn you free tokens and a passive income and can help you cover your losses in the bear market.
#5 Scalp Trading
Given the high volatility of the crypto market, scalp trading is a good alternative in a bearish downtrend. Simply put, scalping is the short-term buying and selling of cryptos to earn small but recurring profits. These profits add up over time to result in a good amount of return.
You can use either of the two techniques during the bear phase to scalp trade - manual or automated. In manual scalping, you have to study the market carefully using real-time analysis to find openings and closings. While in automated scalping, you can develop a unique strategy according to your analysis and diminish the risk of your trading while you are not actively studying the market.
Macroeconomic factors like the increasing inflation rates and tightening of the regulations around the crypto market and internal factors such as the collapse of major crypto blockchains have caused the market to plunge, and no signs of revival seem to be conspicuous. The techniques mentioned above aren’t exhaustive but can be a sure-shot way to earn even during the downtrend. Now that you know how to keep your investments safe and growing during the bear market, start your crypto trading journey with India’s most trusted crypto exchange
WazirX. Happy Trading!
This article is authored by Pratik Ahuja, Associate Director – Marketing at WazirX
Disclaimer: Cryptos are unregulated virtual assets, not a legal tender and subject to market risks. The views and opinions expressed in the article are those of the author(s) and don't represent any investment advice or WazirX's official position.
