Bear markets… they’re never what you want to hear — or are they? Investors are quick to believe that bear markets are never the time to invest thanks to low prices and high volatility. Well, as it turns out, you actually can make money trading and investing during a bear market both for long term and short term gains. Let’s go over the reasons why investing in crypto during a bear market is actually a good strategy.
This is not financial investment advice.
This article will touch upon key aspects of how and why one should invest in cryptocurrency during a bear market.
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In this article
- How Do We Get Bear Markets?
- Discounted Coins
- The First Bull Run Is The Strongest
- Crypto Needed a Bear Market
How Do We Get Bear Markets?
Before we begin to discuss why investing in crypto during a bear market is a good thing, let’s assess the market conditions necessary to bring about a bear market in the first place. As with any drastic market condition shift, there are several factors which could’ve played into the emergence of the new bear market including FUD and unfavorable market conditions. In the case of the cryptocurrency market, both of these factors were in play along with high volatility. This wasn’t just any highly volatile situation, as we witnessed the crypto market jump over 30x in market capitalization in just under a year!
When compared to other markets, this is an extremely high and unsustainable number which is what led to the subsequent “Crypto Winter” which has discouraged many investors from trading or even selling their assets. When one or more of these factors come into play, the market is then susceptible to falling into a bear market. The names for “bear” and “bull” markets come from the way that both animals attack its prey, similar to how each corresponding market condition is.
Furthermore, bears and bulls were literally once fierce opponents, when it was popular to put bulls and bears into the arena to fight. Matches using bulls and bears (whether together or against other animals) took place in the Elizabethan era in London and were also a popular spectator sport in ancient Rome. Characteristics of bear and bull markets have to do with a change in investor psychology, supply and demand, and price values. In the case of bear markets, prices are significantly lower than investors are accustomed to, bringing about long periods of low prices and general volatility.
Bear markets emerge from a combination of factors including unfavorable market conditions, FUD, and investor psychology. Its name comes from the predatory tactics of a bear which are similar to how the market moves.
For those who have the assets necessary to invest in a large amount of coins and wait some time for larger returns, bear markets are indeed the best time to invest! Think about it this way, you have the unique opportunity to purchase a plethora of coins at seemingly discounted prices since they’re all relatively low in value. Although these prices will stay at this level, or dip even lower, we know that the market will ultimately recover and prices will also rise in the near future. So why wait to invest when you can snag some valuable coins at discounted prices?
Warren Buffett said it best when he reminded us to “be fearful when others are greedy and greedy when others are fearful.” This applies to the crypto industry as well, since you know that the bull market is right around the corner. So, instead of being scared and waiting for the market to improve, take advantage of the situation and be prepared to wait it out for the largest gains possible. It could take weeks, months, or even years to finally climb out of a bear market, but only time will tell and we can only wait. For the investors who choose to wait it out while also investing their assets for the long run, they will see the largest gains and benefit the most from paying the least.
Bear markets cause the prices of coins to dip much lower than they usually are. As such, investors are presented with a compelling opportunity to purchase a large amount of coins at an essentially discount price.
The First Bull Run Is The Strongest
For investors who don’t have the assets necessary to wait long periods of time for realized gains, there’s also a short term strategy that you can employ during a bear market as well. History, statistics, and data have all shown that the first bull run following a considerably long bear market is always the largest, which means that investing in crypto during the bear market will lead to a potentially quick turn around. Of course, there’s no way to accurately predict when the bull run will occur, so it’s best to be cautious and conservative with this investment strategy. It’s important to realize that investing when a bull run is already taking place is a bad idea, as quick pullbacks and market corrections will lead to diminishing returns.
Instead, be aware of how the market is moving and at what stage of a bear market you’re in, as investing too soon or too late might result in quick losses. This means that when the market finally does start to rally without any pullbacks or market corrections, you’ll ultimately have the best investment positions that will allow you to ride the upwards trend that follows. Not only is this a generally positive upwards trend, but it’s also bound to be the biggest. The longer that a bear market is in progress, the larger that each subsequent bull run is thanks to several factors including a shift in investor psychology and the fear of missing out — otherwise known as FOMO.
The first bull run following a bear market is always the largest according to history and statistics, which is why investing in a bear market can lead to quick gains. The longer the bear market, the stronger each subsequent bull run is thanks to a shift in investor psychology and the fear of missing out.
Crypto Needed A Bear Market
Bear markets aren’t always bad things, especially for a new industry that is still legitimizing itself as a stable and viable investment option. As the current bear market continues to hold prices to relatively lower averages, we have seen considerably less volatility than usual. Crypto was experiencing a speculative bubble, which is usually caused by exaggerated expectations of future growth, price appreciation, or other events that could cause an increase in asset values. While the market settles down and remains in a bear run, the rest of the crypto industry can focus on improving and developing blockchain technology, which will eventually lead to an innovation that might just speak the next bull run.
Cryptocurrency will continue to go through growing pains, as this was not the first “bubble” pattern to affect the market, and it likely will not be the last. By investing in crypto during the bear market you are not only proving to yourself that the market is stable, but also helping the industry grow in legitimacy. While the market as a whole remains in a bear run, there are also some coins that still climb in value after a short dip. Again, buying the dip will always lead to quick gains and should definitely be used as a strategy to make money during the bear market. Ultimately, time will be the only direct solution for surviving the crypto winter, but there’s a lot to look forward to regarding the future of the industry once this slump passes.
Bear markets are actually a good thing for the cryptocurrency industry, as it allows the market to settle down and decrease the overall volatility that discourages many investors. Additionally, this gives time for developers to focus on innovating and building up the industry, further legitimizing it as a viable investing option.
The cryptocurrency industry saw one of the quickest market capitalization increases in modern history, leading us to the current bear market that has discouraged many investors. However, there are tons of reasons why investing in cryptocurrency during a bear market is actually a good strategy to pursue, including the opportunity to buy coins at a discounted price along with the inevitable bull run that follows. Only time will tell when the bear market will end, but there is certainty the bull run which follows that will benefit those who invest now the most. If you have the patience and time required to wait out the unpredictable bear market, then investing in crypto during a bear market might just be the best investment strategy for you.
When do you think the bear market will come to an end?
Let us know why in the comments!