FinancialCentre Crypto Analyst Suggests How to invest in cryptocurrency when the market is down

London, UK — What is a bear market?

A bear market is a term used to refer to the state of a market when it is experiencing a sustained decline. It includes both the pessimist sentiment of the investors and the security prices falling for a considerable amount of time. A normal market is said to be turned into a bear market when it suffers a loss of 20% or more from its previous high. During a bear market, investors become insecure about their investments, and many try to sell off their stocks at low prices to avoid another loss.

During a bear market, the prices of the stocks fall, which means the demand is lower than the supply of the shares/stocks. This proves to be quite confusing or misleading for inexperienced investors. Bear markets do not have a set time for when they will be over.

Bear markets are slow and unpredictable, and the major factor that causes them is an economic recession. In a shrinking economy, corporate profits are expected to decline, so investors sell their stocks, pushing the economy lower.

Are bear markets in trend?

Bear markets are not permanent; they vary for years and sometimes last only for a few weeks. Due to COVID, every market has gone through this phase, including crypto, so we can say bear markets have been quite in the trend. But it does not mean you cannot function during this scenario. These markets strike investors’ fear, but such downfalls are unavoidable in the industry. 

Bitcoin (BTC), the top cryptocurrency, fell by 56% from its all-time high market capitalization in Q3 of 2021. Meanwhile, ETH (ether) was down by 58% from its all-time high selling price of $ 4,847. Coinbase is down by about 80% from its November 2021 all-time high of $343. These two fractions show that cryptocurrency was under a full-blown bear market. These trends had many investors worried, but it is a fact that bear markets exist for bull markets to rise. 

Why should you invest in bear markets?

According to Oliver Hill, a Crypto Analyst at FinancialCentre, bear markets are not always a threat; they can sometimes provide good opportunities to investors. 

  • You can turn a crisis into an opportunity during a bear market by buying the stocks at low prices as an investment. 
  • Compared to their original prices due to the downfall, the assets trading at lower prices gives new investors a way to enter a market with a low investment for the long run in the future.
  • You can also use bear markets to short your assets.

How to invest in a crypto bear-market?

Analysts lay out various ways and strategies to invest in a crypto market. We have listed some of the tips you can opt for while investing in the crypto bear market.

  • Portfolio diversification
  • Stay focused on the quality
  • A long term approach 
  • Cost Averaging
  • Read white papers
  • Avoid trying to catch the bottom
  • Build positions over time

Ways to be opted to invest in the crypto bear market:

Long-term approach: 

The Crypto market is a market with risks at all times. So it is pretty normal for a market to go under a bear phase as it will mostly not be permanent. Investors with long-term thinking get a benefit under bear markets by buying stocks at lower prices as prices rise when the market enters a bull phase. Patience is the key here, which proves its worth in coming years. Moving out of the stock positions too quickly results in investors’ underperformance.

Cost Averaging:

Cost averaging is tactic investors use to have a lower cost of entry. In this tactic, investors purchase their investment in bits over time instead of buying all at once. This decreases their volatility as they will get stocks at high prices during bull markets, but in bear markets, they will get discounted stocks. Cost averaging is primarily preferred in dollars.

Portfolio Diversification:

Portfolio diversification is mixing your assets in different markets, both bull and bear markets. It means that an investor has his stocks in different companies, so not all companies suffer the same losses when there comes a bear market. Some companies have higher downfalls than others, which minimize the overall losses of investors. Portfolio diversification also helps long-term investors to use bear markets to increase their assets with lower investments.

Focus on the quality:

There are many companies that go under when bear markets prevail. Overleveraged companies tend to go out of business during economic recessions. Meanwhile, high-quality companies perform well even during market downturns. So it is important for the investors to focus on the outperforming sector that has solid balance sheets and durable competitive advantages. An investor must perform thorough research during a bear market to invest only in high-quality companies and avoid immense loss.

Read White Papers:

An inexperienced investor should take his time to read white papers during bear markets. A white paper is a detailed guide proposed by the developers of a crypto company, which includes its technology and the goal. Investors should use bear markets to do immense research on crypto, said Ash Egan, the founder of Archetype.

Don’t try to catch the bottom:

Bear markets are for long-term investors as bear markets recover on their own, taking their time. Investors who try to time the market out of the recession need to change their mindset. Even after buying stocks at low prices, there are possibilities that their price will further go down. An investor can’t catch the bottom, thinking he will invest at the lowest.

Build positions over time:

Stock prices fall during a bear market, which is quite normal. So instead of using the whole investment, thinking it is the bottom, there is a better option to opt for. An investor should use his investment in building his stock positions over time, even if there are possibilities of further downfall. This way, if stocks keep falling, the investor will be able to take advantage of the new lower price.

Disclaimer: Our content is intended to be used for informational purposes only. It is very important to do your own research before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on this article and wish to rely upon, whether for the purpose of making an investment decision or otherwise.

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