After the incredible rise of cryptocurrency in 2017, spirits were high. Almost every investment would have yielded incredible returns, profits that were impossible through any other type of investment within such a short time period. Yet 2018 has seen the cryptocurrency market plummeting; Bitcoin alone has lost more than half of its all-time-high value.
At times like this, it is perfectly normal to feel stressed out about having lost money. However, this does not mean you should panic just yet. Here are 5 things that you can do during a Bear Market to make sure that you come out ahead.
Just because the market is going down does not mean that you are losing money; if you had purchased Bitcoin or Ethereum at the start of 2017, you are still in the black! Take a quick look at your portfolio before anything. If you really are experiencing a loss, take a deep breath and read on.
The worst thing that you could do now is to panic and sell your cryptocurrencies. Remember, that it is only a loss on paper until sold. Selling at the wrong time could result in unnecessary losses.
Times like these differentiate the good investor from a novice — keep a cool head and do not make decisions based on emotion. The ability to do this is crucial in coming out of the bear market relatively unscathed. Sometimes the best thing to do when being attacked by a bear is to do absolutely nothing (playing dead).
Drawing Up Financial Plans
If you have been investing into cryptocurrency, your account books can get a little messy — I myself have crypto stored in my ledger, in a few exchanges, as well as in a few wallets; it can be difficult to keep track of everything.
You can take the time now to consolidate your finances, and not just for your crypto investments. CryptoGrinders has always stressed that no one should place all of their eggs in one basket, and money in cryptocurrency should only be money that you are able to lose.
Make sure that your savings portfolio is divided comfortably between investments (crypto or otherwise), savings in cash and savings in assets (such as gold or property). When you have diversified enough, you will be less impacted by a downturn in any particular market area.
A bear market is also a good time to access your risk appetite. If you are feeling stressed out due to the market situation, or if you are experiencing health issues, it may be wise to adjust to a less aggressive portfolio. There is absolutely nothing wrong with playing it safe.
Do Not Have Tunnel Vision
It can be easy to just obsess on the loss, and fervently stare at the chart in hopes of it rising. Rather than doing so, take a step back and try to find out more information about the situation.
Cryptocurrency markets are heavily moved by news: a report that China is banning mining can lead to an outright dive in cryptocurrency prices. Even news that does not pertain to cryptocurrency has a direct effect on the market; if there is news that the US dollar is falling in value, cryptocurrency could be seen as a viable store of value.
There are many news outlets, such as CoinDesk and Investor’s Business Daily, that provide up-to-date information on the happenings in the market. Make an effort to read through at least 15 minutes a day. While it does not guarantee that you will not be affected during the next downturn, it helps you to stay ahead of other investors if you know how to spot trends and make educated investments.
Feed the bear
There is a fine line between catching a falling knife and getting a great deal in a fire sale. Before you decide to feed the bear, make sure that you have a good grasp of the fundamentals of the project; the dot com bubble burst wiped out many companies, but those that remained become some of the greatest companies today.
If the project looks strong, a bear market could be a good opportunity to pick up some cryptocurrency at a much lower price. These are going to middle to long-term investments, and be prepared to sit on them for weeks, or even months. If they are fundamentally sound and fulfil a real need in the market, you will be glad that the bear market let you obtain more of the cryptocurrency at a lower price.
That being said, do not immediately purchase a large amount of cheap cryptocurrency; you never know if the bear run has finished its course, or is going to keep plummeting. Apply Dollar-Cost Averaging (DCA), where you spend the same amount each week to pick up some of the cryptocurrency.
For example, for a person looking to invest $10,000 into Bitcoin could place an order for $1,000 a week for 10 weeks. This would reduce the risk, and stress, of having to ‘time’ the buy in.
This final method is only meant for those who are comfortable trading, and have done so for an extended period of time. Unlike investing, where the cryptocurrencies are bought to keep for a duration of time, short selling (shorting) is a whole other ball game.
Investing, or going long, is done in anticipation that the cryptocurrency will be appreciating in value. By buying at a lower cost and selling at a higher price, investors are able to profit off the difference.
By contrast, going short is done in anticipation of the cryptocurrency falling in value. Keep in mind that there are various ways to go about doing so, and this article only covers the most basic type of shorting — direct short selling.
In this case, a person would sell off their Bitcoin at a price they are comfortable with. They are counting on the market price of Bitcoin to fall further, and they ‘close’ their position by buying back the more Bitcoin at a lower price.
By doing so, an individual’s stash of cryptocurrency can continue to grow even in a bear market, without having to pump in any fresh capital.
Bear markets are not permanent, even if they feel like they last forever. Patience and discipline are two of the hardest things to adhere to in a situation like this; there is a feeling of helplessness as your assets drop in value. But if you diligently follow the 5 steps described above, you are likely to come out of it better off than your fellow investors. Don’t forget that everyone is bleeding during a bear market — if you’re losing 5% compared to the market average of 20%, you’re faring much better than everyone else.
If all else fails, there is no shame in asking a professional for help. It is understandable that not everyone has the time to constantly monitor their trades, nor can they always keep up to date with the latest news. Professionals are able to provide you with the right information in a timely fashion to ensure that you are able to make the best possible decisions at the optimal times. (CryptoGrinders Premium Group)
As always, safe investing!
20 March 2018