How To Stay Safe In A Crypto Bear Market

Crypto is volatile, and the risks associated with investing in these bear markets tend to be more intense.

The most common mistake investors make is poor asset allocation without proper diversification. ( Image Source :Karolina Grabowska/Pexels )

As all assets go through ups and downs, the crypto market also goes through these cyclic waves. The prolonged downward trend that lasts for a while is usually referred to as the bear market, where the value keeps declining. However, this trend is temporary and can be attributed to factors like when supply is higher than demand, macroeconomic conditions, changes in monetary policies, and others that can impact the market. Crypto is volatile, and the risks associated with investing in these bear markets tend to be more intense. These situations can affect new investors who handle and manage their portfolios without experience. Here is how investors can stay safe in a crypto bear market:

Avoid investing in low market capitalisation tokens 

During a bear market, most cryptocurrencies decline to a great extent. In such times, investing in low market cap tokens can be even riskier. There are high chances of those tokens shutting down as they are like startups and are not well established yet, so they can grow dramatically or fall significantly. 

Hence, opting for high market cap tokens or blue chip cryptocurrencies such as Bitcoin, Ethereum, and others — which have retained their positions since their inspection — can be a great idea. 

Do not panic sell 

Most investors start selling on the first sign of market volatility, which can later lead to great regrets. For example, Bitcoin is considered digital gold, a store of value that has been appreciated over the years. This is why many investors look up to BTC as a long-time investment. 

But when the price starts falling, investors tend to react quickly and start selling their BTC, panicking in the situation. However, it is a normal reflex, and this step can later be regretted when its price again bumps up after some days. So rather than selling, HODL (crypto slang for ‘hold on for deal life’). 

Diversification is the key

The most common mistake investors make is poor asset allocation without proper diversification. In times of high market volatility or bear markets, if an investor invests all their funds in one sector, this step can put them into trouble by taking the portfolio into the red. 

So, it is good to diversify and invest to safeguard the portfolio. This way, investors can ensure better risk-adjusted results.

Keep an eye on community engagement 

In the crypto market, community engagement is of the utmost importance, as the community plays a vital role in pushing the token up. Most top cryptocurrencies have great community engagement, especially during the bear market. 

Less community engagement means that there are no drivers or believers of the token. So keep an eye on the project's engagement on Twitter, Reddit, and Discord before planning to invest. 

Know about the demand and supply of the tokens 

Investing in a token with less demand and supply is not the right decision as it may not have a future in the long term. If the demand is less likely, the token will not sustain in the market for long. 

So, it is always suggested to invest in tokens while keeping in mind tokenomics. Therefore, doing a good background research is crucial.

Plan and stick to a strategy 

A proper risk management strategy could be vital during the crypto bear market. It can help investors to stay strong and avoid making any emotional decisions. 

This can also reduce stress throughout the downward trend. Therefore, sticking to a plan can be great for better results in the long term. 

Do your own research

Last but not least, conducting thoughtful analysis and research can always help investors stay safe during a bear market. 

Investors should remember things like purpose, supply and demand, tokenomics, community engagement, and upcoming upgrades of the tokens to decide better. 

(The author is the CEO and co-founder of Mudrex, a global crypto-investing company)

Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal.

Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.