5 Bear Market Success Tips for Crypto Retail Investors
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Let’s face it, we’re in the middle of a bear market. Bitcoin is over 60% down from its all-time high, and trading volume is abysmal. It’s not just Bitcoin, NFT trading is down 98% from January.
The bull run is a distant memory and given the current world financial situation, the next bull run could be up to a few years away. Until then, we can sharpen our skills and position ourselves to thrive in the next bull run.
When preparation meets opportunity, success is inevitable - Elijahwun Whitehead
Tip #1: Remember How We Got Here
Understanding the reasons why the crypto markets pump and subsequently dump is essential for navigating the markets. Each bull cycle and subsequent winter has its own backstory.
For instance, 2014 and 2017 differed from each other mainly due to the ICO mania of the 2017 bull run. In 2017, the bull market was built predominantly off the back of Initial Coin Offerings (ICOs) and the general cryptocurrency hype.
While some legitimate projects like Cardano and Algorand were able to raise capital during the ICO bubble of 2017, most projects failed to deliver any product. If you look at the top cryptocurrencies by market cap in 2017, you will notice many projects like Dash, NEM, Qtum, OsmiseGO, or Lisk in the top 20.
After the 2017 bubble burst, we saw a harsh winter with BTC remaining 70% below it’s all-time high for months. This can be largely attributed to the speculative nature of the ICO mania, where investors were pouring money into products that weren’t adopted by the masses.
If you were keenly aware of the speculative nature of the 2017 bull run, you would have known to collect profits and position yourself accordingly. Today, we can draw similar parallels, such as with the metaverse speculation.
Projects that vaguely promised a VR utopia built off of the blockchain are receiving millions in funding. This isn’t to say VR or Metaverse gaming doesn’t have a bright future, but there is a known pattern of venture capital diving into technology that may never be adopted.
For this bear market, we advise learning as much as you can about the macroeconomic conditions that affect cryptocurrencies and the overall stock market. Learning about the use-case and utility of layer 1 blockchains, and learning the difference between a speculative play and a solid investment.
Tip #2: Sell Losses to offset Capital Gains
*This is not financial advice, consult a financial advisor when making investing and tax decisions.
Having said that, if you have lost some money this year trading cryptocurrency, you may be able to use your crypto losses to offset your capital gains tax. Buying and selling cryptocurrency is a taxable event in the United States.
We strongly support the reporting of any and all of your crypto transactions to the IRS when filing taxes. This includes any swap, NFT purchase, or DeFi liquidity pool gain. For every dollar you earned, make sure your accountant knows about every dollar you lost as well.
Capital Gains taxes are a complex issue with a variety of nuisance scenarios that affect your capital gains taxes owed. Unless you are a tax professional, we advise seeking professional consultation.
Tip #3: DCA Into Projects with Strong Fundamentals
DCA, or Dollar Cost Averaging, is one of the safest ways to hedge against price volatility. By making regular investments in a project you feel strongly about, you can increase your position without taking on the full risks of market volatility. Going “all in” on any cryptocurrency asset is rarely recommended.
If you invested $100 into BTC every week between Dec 18, 2017 and Jan 25, 2021, you would have seen returns of 299%, turning that weekly investment into a total of $16,300.
Taking the same $16,300 and investing it all at once on Dec 18, 2017, you would have only seen a 113% increase in your investment while suffering from extreme volatility and having access to smaller cash positions.
Tip #4: Staking
If you are bullish for a project on Ethereum, then your main focus should be accumulating as much ETH or ERC-20 tokens as possible without considering the US valuation.
One way to accumulate more ETH, among many other L1 cryptocurrencies, is by staking. Staking is when you lock up your assets to help participate in node validation (staking can be explained here).
For Algorand, you can earn 5.75% ALGO (at the time of this article) every year for participating in staking. While you are still taking on the price volatility risk and if you don’t plan on selling anytime soon, your main focus should be on accumulating whichever asset you feel strongest about.
Today, Cardano is trading at $0.38 cents, down from its all-time high of ~ $2.96. While ADA may go lower, true believers are happy to accumulate at these low prices.
Tip #5: Don't Try to Time the Bottom
No one knows when the bottom has truly hit, despite how much they try to convince you otherwise. The internet is full of misinformation starting from crypto and NFT gurus, to well-meaning financial professionals who consistently make false predictions.
You will never sell the top, and you will never buy the bottom. By understanding this, you should position yourself to DCA into projects with strong fundamentals and prepare yourself to take profits during upswings.
If you thought that $30,000 was the bear market bottom for BTC in 2022, you would be down over 30% from your position. During the 2021 bull run, the popular consensus was that BTC would hit $100K minimum. Conversely, many thought BTC would go as low as $10k during the brief bear market of 2021.
Don’t put all your chips on one hand as it is a long-term game, even if you lose in the short term. Make sure to have some cash freed up for the next opportunity.
Bear markets aren’t all bad, in 2019 we saw BTC go up 4X during a “bear market”. Today, thousands of developers continue to build on blockchain and the markets have matured to a level far past the aftermath of the ICO bubble in 2018.
DeFi and NFTs have brought on new ways for investors to participate with cryptocurrency. Investors still have an incentive to participate in many L1 chains, like Solana or Ethereum, despite their failing prices.
If you’re still around and learning more about crypto during this bear market, give yourself a round of applause. Sticking around and learning about the space will only benefit you in the long run.
For more detailed information on dollar-cost averaging, please refer to this article for examples.
Crypto Investing FAQs
I can barely cover my living expenses. Should I still invest in crypto assets?
No, accumulate as much cash as possible during these times as opposed to investing your last dollars into cryptocurrency. Save your USD and learning as much as you can before you invest.
You will position yourself to make some highly informed and potentially lucrative investments down the road once you have more comfortable savings.
What if the market goes down even further than its current condition?
The market may go down 50% further from its current evaluation. Prepare for that, but also have a plan in case it doesn’t.
I've never invested before, how should I get started?
Visiting reputable content creators like Benjamin Cowen, or Whiteboard Crypto are great places to start. Utilizing reputable exchanges like Crypto.com, Coinbase, or Gemini is also recommended for new investors.
How much of my net worth should I invest in order to set up me and my family long-term?
As much as you are willing to lose. Nothing in this world is guaranteed, and we strongly advise against investing a large % of your net worth into any asset or commodity without proper research and guidance from a financial advisor.
Who is Cindicator?
Cindicator is a world-wide team of individuals with expertise in math, data science, quant trading, and finances, working together with one collective mind. Founded in 2015, Cindicator builds predictive analytics by merging collective intelligence and machine learning models. Stoic AI is the company’s flagship product that offers automated trading strategies for cryptocurrency investors. Join us on Telegram or Twitter to stay in touch.
Information in the article does not, nor does it purport to, constitute any form of professional investment advice, recommendation, or independent analysis.