We’re Officially In A Bear Market. This is How to Survive it
Now is not the time to panic. Do this instead.
Bear markets can be scary. If this is your first time going through one you may feel like hiding away in a cabin in the woods with cash stored under your mattress waiting for the sun to shine again on the financial markets.
However, contrary to conventional thinking, bear markets are actually favorable for seasoned investors and those who know how to profit from them. This is for a number of reasons that mainstream media DOES NOT want you to know.
On the surface, all that is being shown online is a sea of red in the crypto markets, people losing their life savings in projects they thought were going to the moon and lots and lots of fear. While this is, unfortunately, the case for the majority of people, there are a minority of people out there who have been preparing for this, profiting on the way down, and are going to make life-changing amounts of money during the next bull run due to how they handled this season of crypto.
Enough teasing, here is what that minority of people do that ensure that they not only survive the bear market, but profit from it too.
First, What is a Bear Market?
A bear market is defined as a period when any given financial market experiences a prolonged decline in price by 20% or more causing widespread fear and pessimism as a result. These periods of market decline are inevitable and happen every once in a while and are perfectly normal.
Bull markets on the other hand, is a condition of the financial market when prices are rising or expected to rise. On average, bear markets tend to last for 289 days which is approximately 9.6 Months. If that number scares you, just know that bull markets, tend to last 991 days or 2.7 years, which is why during the relatively short-lived bear market it is important that you capitalize on the discounted prices of everything.
Now that you know what a bear market is, here is how you survive one.
First and foremost you need the right mindset. Many people don’t often draw the association between philosophy and investing, but the two go hand-in-hand in many ways. Now there are a plethora of different philosophies that one can draw from when it comes to formulating a mindset for investing, however, there is one that stands out from the rest — Stoicism.
The Stoics taught that one should focus on the things they control and discard the elements outside of their control. This is useful in investing because so much is out of your control it can be frustrating sometimes. For example, instead of trying to time the bottom and the tops of the market, an act even the best traders cannot get right, focus on how much money you can afford to invest during big dips in price. Remember, you don’t control how much money you pull out of an investment, but you do control how much money you put in, and how you respond when things do not go your way.
The Stoics also believed in preparing for the worst, using a strategy known as premeditatio malorum or negative visualization. They would imagine the worst possible outcome and ask themselves how they would overcome such an event if it were to occur. In the realm of investing, the worst-case scenario is always that you lose all your money. For this reason, the advice to only invest what you can afford to lose is useful in that even if the worst-case scenario were to occur, you know deep down you will still be fine and can recover from it.
Dollar-Cost Averaging and Holding
Whether you are a beginner or an advanced trader, dollar-cost averaging every week or month is proven to be the most effective strategy when dealing with a bear market. Dollar-cost averaging (DCA) is the process of investing small amounts in a recurring interval such as weekly, fortnightly, or monthly regardless of the state of the market. This strategy ensures that in the long-term your average purchase price of any given cryptocurrency will average out because you will have bought both in the highs and the lows of the market. This method combined with holding through the bear market will almost guarantee you make significant profits during the next bull run.
Staking your cryptocurrencies on DeFi protocols or crypto wallets that offer it is a great way to allow your idle coins to make some passive income for you while you hold through the bear market. Some wallets such as NEXO wallet allow you to earn interest on the cryptocurrencies you hold in the wallet passively earning you as high as 36% APY on some coins. This is a fantastic way to hedge against inflation and deploy your capital to work for you during times when the market is in turmoil.
Avoid Leverage Trading
During a bear market, the most unpredictable events can occur where no amount of technical analysis can save you from. For example, the recent crash in the value of Luna and UST becoming unpegged from the U.S. Dollar is an event that if you made the wrong call could have easily liquidated you. Leveraged trading in general is a risky endeavor that only advanced traders should consider dabbling with. If you are a beginner or intermediate investor with not a lot of experience and knowledge of how the markets work, you should avoid anything to do with leverage.
The (Hidden) Truth About Bear Markets
Most people detest bear markets, which is perfectly reasonable considering most people lose a lot of their personal wealth during these times. However, amidst all the FUD and negativity, lies hidden benefits and opportunities that the crypto whales and smart investors keep for themselves.
Most people look forward to bull markets because they see everyone buying and think that they are going to become richer during this period when anything they touch goes up in value. However, what they fail to realize is that when the time an action seems most certain is the time when the most opportunity is lost. There is an old saying that every investor should know, it goes:
‘Be Fearful When Others Are Greedy and Greedy When Others Are Fearful’ — Warren Buffett
In other words, when everyone is panicking and the markets are bleeding, that is when a smart investor buys heavily. Then, when everyone is happy and the markets are flourishing and everything is hitting all-time highs, this is when the smart investor takes his profits and waits for the next opportunity to reinvest it all.
Sounds easy enough right, but you would be surprised how many people do the opposite.
Reveals the Anti-fragile Assets
Bear markets are useful for cutting through all the noise leftover from the bull run. In a bull run, anything can look like a good investment because everything goes up, however, it is only during a time of stress that the real value and strength of a project are revealed. Anti-fragility is the quality of getting stronger and thriving as a result of stressors or pain. All good assets that have stood the test of time are anti-fragile and these assets are only revealed during bear markets and times of hardship. Therefore, the projects that stay afloat during bear markets while others are sinking tell you where you should be parking your hard-earned dollars for the future.
You Learn About Yourself
Bear markets teach you about your tolerance to risk and stress. You may not always like how it will make you feel but the pain and feedback you get is often necessary when starting out as a new investor. You may be wondering why understanding yourself is important as an investor. The answer is because you are your own worst enemy when it comes to your money due to the fact that humans by nature, are emotional animals. Unfortunately, your emotions, especially the negative ones and investing are not the greatest of friends. So learning about how you respond to losses and setbacks and how to overcome your emotions during these times will be a high utility skill that is worth acquiring as soon as possible.
With the crypto markets down double digit percentages and with everything going on in the world right now the future for crypto may look bleak. However, it is important to remember how far this industry has come since its inception. The volatility of previous bear markets saw much steeper dips and wiped out way more bank balances overnight than this one so far. So if the people from those bear markets were able to survive through that and live to tell the tale, then so can you.
Connect with Us
- Anas: twitter.com/ananasbrb
- Danosch: twitter.com/thecryptosheikh
- Rahim: twitter.com/rahim_mahtab
- Zayaan: twitter.com/thenftpenguin
- Sam Z: twitter.com/zuckerswag
- Kristel: twitter.com/atelier_kristel
Thank you for getting involved early in the Arts DAO journey. We are dedicating every moment we have to building and being part of the evolution of blockchain technology, the NFT space, and art more generally. We look forward to meeting with you either in one of our real-life events or elsewhere in the metaverse!