Crypto Volatility and Why You Should Buy During a Bear Market
The biggest issue with the cryptocurrency industry is that it is entirely speculative. Whereas certain stocks offered on the stock market are backed by companies that produce products of value, cryptocurrencies themselves do not have any value. This lack of intrinsic value contributes to the volatility that the crypto market experiences, making it susceptible to random and sometimes massive price fluctuations. These price fluctuations, which will sometimes be indicative of a bear market, can often be the best times for investors to begin purchasing assets again. To better understand the reasons behind the volatility in the crypto market and the reasons why you should invest when the markets are down, here is a brief explanation behind crypto volatility and bear market opportunities.
This is not financial advice. Don’t forget to conduct your own due diligence, or consult a licensed financial advisor or broker before making any and all investment decisions.
The Factors Behind Volatility in the Crypto Market
As we mentioned above, a lack of intrinsic value is a major factor in the volatility of cryptocurrency assets. However, it is not the only factor. Here are a few other reasons why the crypto market is highly volatile.
1. Cryptocurrencies Are Heavily Affected By the News
Without a predetermined value to fall back on, cryptocurrencies have to rely on the perceived value provided by users and investors. Because of this, any news stories that paint a certain crypto asset in a negative light or cast FUD (doubt) on the industry as a whole will often bring down the prices of the cryptocurrency market.
2. Opposition Posed By Governments
While some cryptocurrency assets are designed to work with major financial institutions and comply with some government regulations, most assets are not as easily regulated, which is a major problem for governments. Should a government decide to do so, they may ban a crypto asset at a moment’s notice, which can have a huge impact on some crypto-assets.
3. Investors Can Manipulate the Market As They See Fit
Because there is little to no regulation in the crypto market, the market is subject to manipulation by investors who hold significantly more cryptocurrency assets than the majority (🐳). When these large investors use trading methods to manipulate the price of a given cryptocurrency asset, they can cause price fluctuations that benefit their current investment portfolio.
Overall, there are many reasons why cryptocurrency assets are so volatile. However, this volatility isn’t necessarily a bad thing. In fact, investors could benefit from ups and downs, especially if the falling prices indicate an entrance into a bear market. For those who are unfamiliar with the term, a bear market is one that is experiencing massive and continuous price drops. In the traditional financial markets, a 20 percent or greater drop in prices over a period of two months or more is often indicative of a bear market. Why would investors experience any benefit from investing in the bear market?
Why 🐻 Markets Can Offer Strong Opportunities
1. Low Crypto Prices
Unless the crypto market collapses completely, a temporary drop in value provides investors with the opportunity to purchase coins at a lower price. While the value of these coins continues to remain at their low price during the bear market, investors can rest assured that they may profit if the markets will turn bullish again. Hence, if you have the patience ⏳, bear markets offer a unique opportunity to purchase cryptocurrencies at supposedly discounted prices since they’re all relatively at a lower trading price.
2. Clear Strong Investments Emerge
During a bear market, it becomes very clear which investments only experienced a rise in prices due to the hype and which ones still have strong backing from supporters and investors alike. You can use the bear market to your advantage by identifying and only buying into assets that have a strong value proposition rather than 💩 coins.
3. The First Bull Run is the Strongest
There is no way to predict if and when another bull run will happen, and this is why it can be of interest to join it before it does. Statistics have shown that the first bull run following a bear market tends to be the strongest, do you still remember the FOMO that happened in 2017? Indeed, if and when the market does start to rally again, investing at a good timing can provide you with the best position to clearly benefit from the upward trend.
Although bear markets tend to have negative reputations, they come with their fair share of benefits that can work in favor of the investor. The benefits listed above indicate why volatility may work for investors and why you might be interested in purchasing assets during a bear market such as the one we are experiencing now.