Bear Market Survival Guide: 8 Lessons to Live By

Bear Market Survival Guide: 8 Lessons to Live By

Bear markets can be a daunting time for any cryptocurrency holder or investor, since they typically lead to sustained, often significant losses across the board for most digital assets. 

While it’s true that no market can keep going up forever, bear markets present opportunities of their own and can be an excellent time to correct any mistakes you made, do your research and ready yourself for when the market recovers.
Here, we break down eight ways to make the most of your time and money in the next bear market, to put yourself in a strong position when the market eventually picks back up. 

This article is intended to be used and must be used for informational purposes only. It is important to do your own research and analysis before making any material decisions related to any of the products or services described. This article is not intended as, and shall not be construed as, financial advice. 

Stick to the Plan

If you are anything like most people, when things go pear-shaped, all plans and strategies go out of the window. But if there’s one thing that is of the utmost importance when investing and trading — it’s sticking to the plan (presuming the plan is well-formulated). 

If you’ve ever thought to yourself, “as soon as X falls below Y price, I’ll buy in”… before later failing to stick to the plan, then you’re part of the majority. However, while it’s easy to make such plans when the market is strong, actually sticking to them when everything starts plummeting is easier said than done. 

And yet, history has shown that those that have the guts to pull the trigger and buy when the market is blood red often perform the best long-term. Take, for example, Bitcoin’s collapse from over $20,000 in December 2017 to under $4,000 in December 2018. 

What proportion of people that pledged to buy in the “next time it dips under X” actually followed through and then held? 

A vanishingly small minority. 

Most of us are guilty of this. When the market tanks, most will start to think that this is the time it collapses to zero or simply never recovers, while some will delay entering hoping to buy even lower, but never pull the trigger. 

However, as Bitcoin and many other fundamentally sound cryptocurrencies have proven, they almost always bounce back stronger over the long term. 

One of the simplest ways to avoid getting cold feet is to simply set limit orders at your target price. For example, if you wish to enter Bitcoin if it ever falls below $10,000, you can set a limit order to trigger a market buy the next time it touches this price point. 
Alternatively, consider using dollar cost averaging (DCA) to build your positions during a down market, this will help to spread out your entry price, and many exchanges and brokers allow you to automate this process by setting up a recurring purchase. 

Trust in the Fundamentals

The cryptocurrency market is full of opportunities, and though even low-quality projects can indeed go on to achieve (often transient) success, those that have all the fundamentals in place generally stand the best chance of surviving a bear market to come out stronger on the other side.

Don’t be fazed by hype and transient movements; although these can certainly be useful indicators during a bull market, they are of less value in a bear market. Instead, the fundamental indicators of strength can be used to spot projects that may be performing poorly now, but have the potential to skyrocket when the market recovers.

A reminder of how things looked in November 2018. 

Some of the things to look out for include a strong team and partners, value-adding backers, strong liquidity, top tier exchange listings, potential and a great market fit. If a project genuinely meets these criteria, then odds are it will perform well in a bull market. 

That said, a project’s fundamentals can change considerably over the course of its lifetime based on changes in leadership, direction, competition and market sentiment. Because of this, it’s important to check in on projects regularly to see that they’re hitting their roadmap milestones, growing and pushing in the right direction. If not, consider rethinking your investment in the project — there are almost always better alternatives. 

Click here for a more in-depth look at picking out potentially promising projects using the absolute fundamentals. 

Brush Up On Your Knowledge

Although bear markets certainly make it more difficult to turn a profit while trading or investing on the long side, they do offer an often much-needed reprieve from the mania that is a bull market. 

This time can be used to get a better understanding of the market, see what works and what doesn’t, and better prepare yourself for the next bull market. At the very least, it can give you the time to reflect on your previous investment decisions, to better understand what you did wrong, what you did right, or what you’d tweak if given the chance. 

For absolute beginners, bear markets are an excellent opportunity to really hone your understanding of cryptocurrencies and the blockchain space in general, focusing on the how’s and why’s of major cryptocurrencies, and getting to grips with the factors that can influence the market. 

If you’re particularly bullish on a particular vertical — such as second layer solutions, interoperability platforms, blockchain games, privacy coins, etc. — then you may wish to take a deep dive into these, since this will help you better project how these assets are likely to evolve over a given time scale. It’ll also help you recognize undervalued assets more readily. 

Some of the more useful things you may want to brush up on might include:

  • Technical analysis: to identify market patterns that indicate a good entry/exit point;
  • Fundamental analysis: to spot undervalued projects with long-term growth potential;
  • Sentiment analysis: to understand the general tone, fear, and hype in the market;
  • Risk management: to learn how to manage your risks, budget and diversify your investments;
  • Trading strategy: research and test various trading strategies to be competent enough to deal with more opportunities.

By ensuring you are properly informed and well-equipped to spot and act on potentially lucrative trading opportunities, you’ll stand the best chance of success in both a bull and bear market. 

Understand That Not Everything Will Collapse

Bear markets can be a disheartening time for cryptocurrency enthusiasts, who have to see their portfolios experience gut-wrenching losses over what could be a very short timeframe.
But while it is true that the vast majority of cryptocurrencies will see dramatic losses during the next bear market, not all will. The ability to recognize which ones will withstand the overall bearish market and which will plummet is a talent that few have. 

After all, several cryptocurrencies, including LOOM Network, Metaverse ETP and Binance Coin (BNB) were able to buck the trend and retain most of their value throughout 2018 — one of the worst bear periods on record for most cryptocurrencies. 

That said, just a small proportion of projects will accomplish this in the next bear market. This goes for both new launches and already established projects. Some will manage to retain their value better than others, while a tiny fraction will actually go on to appreciate in value. 

Taking the time to predict and identify which ones might accomplish this could prevent you from exiting positions early.

Scoop Up Discounted Gems

While bear markets can be trying times for many investors and traders, they also represent the best possible opportunity to purchase promising coins and tokens at rock bottom prices. 

Between 2018 and 2020, the vast majority of cryptocurrencies experienced staggering losses — many of which lost more than 90% of their value in these three years. Zooming in on Bitcoin, it fell from a peak of more than $20,000 down to almost $3,000 at its lowest point. Despite collapsing by more than 80% in the bear market, Bitcoin would then go on to gain more than 2,000% in the recent bull market to break successive all-time highest values. 

However, few traders actually bought Bitcoin at or even close to this low point, due to the psychological difficulty of purchasing an asset after such a sizable drop — while those that did probably didn’t hold long enough to maximize their returns. 
That said, with the right mental fortitude and a plan, bear markets are arguably the best time to accumulate positions in fundamentally strong cryptocurrencies. But identifying which are simply suffering due to the prevailing bear market and which are seeing a permanent sell-off is easier said than done. 

As always, past performance isn’t always an indicator of future success, but if a cryptocurrency has demonstrated cyclic price action and repeatedly recovered stronger than before, this certainly bodes well for the asset. As always, remember to play the field and ensure you are exposed to multiple projects across several sectors, rather than putting all your eggs in one basket. This helps to even out any losses while ensuring you stand a better chance at catching a unicorn. 

Put Idle Assets to Use

One of the biggest mistakes cryptocurrency holders make is…holding. Though many cryptocurrencies have demonstrated a long-term bullish trend that has generated fantastic returns for those that simply held, it’s not the most efficient use of capital. 
Instead, by leveraging CeFi or DeFi platforms to generate a yield on these assets, you can grow your balance while you wait for the market to pick up again. Nowadays, depending on the assets you hold, earning a 5%+ APY yield is a relatively straightforward process, and depending on your risk tolerance, it’s possible to earn significantly more. 
Decentralized platforms like Orion Money allow you to earn up to 25% APY on your stablecoins, whereas savings platforms like Nexo, Celsius and BlockFi offer around 6-10% APY on volatile assets like BTC, ETH and BNB. Moreover, many AMMs like Curve, PancakeSwap and Uniswap allow you to generate a relatively safe yield on both volatile and stable assets by providing liquidity or farming using LP tokens. 
By putting your idle assets to use in a bear market, you can grow your holdings, putting you in a better position if/when the market eventually recovers. For example, if you’re sitting on $10,000 worth of stablecoins and 0.1 BTC and you simply hold these for two years, you’d still be left with exactly $10,000 in stablecoins and 0.1 BTC.
Click here for an overview of interest-bearing cryptocurrency platforms. 

Conversely, if you put the $10,000 into a DeFi savings account like Orion Money or Anchor Protocol, and get ~20% APY, you’d end up with $14,400 after two years. Whereas if you earned 8% APY on your 0.1 BTC through platforms like Celsius during this period, you’d end up with 0.1164 BTC — which could then go on to appreciate during the next bull market. 

If nothing else, these platforms could be used to offset some of the losses you may incur during the bear market. 

That said, you may want to consider using one of the myriad DeFi insurance options, such as Nexus Mutual, InsurAce or Bridge Mutual to help mitigate the risks of smart contract failure, hacks, thefts and stablecoin depegs when using these platforms. It’s always better to be safe than sorry. 

Don’t Forget to Short

In a bull market, simply buying and holding most fundamentally sound cryptocurrencies and digital assets generally leads to a position of profit — i.e. it’s usually a good idea to buy low and then sell high. 

The exact opposite can be said for bear markets, where selling early is typically best, and the trading methodology shifts to selling high, buying low and repeating where possible. 

But while opportunities to go long are scant in a bear market, the number of short opportunities skyrockets. However, fewer traders know how to comfortably trade on the short side, and even fewer are able to generate a profit while doing so. 

There are a number of ways to profit in a declining market, this includes short selling, shorting options/futures contracts, holding inverse ETFs, using prediction markets and more. Each of these methods comes with its own benefits and drawbacks, and it’s always a good idea to become familiar with each before risking substantial sums. 

Remember, even if you are fundamentally bullish on certain cryptocurrencies or the cryptocurrency industry as a whole, almost all cryptocurrencies will likely experience a downturn in a bear market. Because of this, substantial gains can be made by trading on the short side where opportune. 

Time to Network

As with most industries, the strength of your network can strongly influence your odds of success. In a fast-paced, innovation-based industry like cryptocurrency, this is certainly the case, and it would be a wise move to form connections and friendships with the builders and innovators that will be pioneering the blockchain-based projects of tomorrow. 

Bear markets represent an opportune time to mingle and get your name out there, this can be accomplished by attending conferences, seminars, or local workshops, or simply stepping up your LinkedIn game. The more people you know, the better the odds that you’ll be in an excellent position for success come the next bull market. 

Looking for events? The CoinMarketCap Events Calendar is a good place to start.

Whether through early exposure to upcoming projects, access to highly sought-after job positions, or simply expert insight and information, or simply sourcing the right team for your own developments, the importance of a strong network cannot be overstated. Nonetheless, far too many people opt to go it alone, only to find themselves regretting it when the market recovers.

Further Reading

Looking to go that one step further to put yourself in the best position in any market? Take a look at some CoinMarketCap features that can help you on your journey. 

  • Halving countdown clock: Bitcoin (and the cryptocurrency market in general) tends to operate in four-year cycles, where the Bitcoin halving event typically occurs roughly in the middle of a cycle and precedes a period of exponential highs.
  • Historical snapshots: Can be used to track the performance of an asset relative to others over any given timeframe.
  • Custom portfolio: Struggling to keep track of your assets? Create a custom portfolio to monitor their price action and your P&L with ease.
  • Guides: The more well-versed you are on specific assets and the market in general, the better prepared you’ll be to recognize patterns and spot opportunities. Check out our how-to guides and crypto basics to brush up on your knowledge.