Best Crypto To Hold In Bear Market

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Coinrule

7 min readJan 7, 2022

One of the first things you learn about Cryptocurrency is that it is volatile. For many would-be investors, this is enough reason to stay away from investing in Crypto. However, savvy investors understand that markets are unstable and have learned to find stability and opportunity in the middle of the madness.

2021 has been a highly unpredictable, yet also extremely profitable year for many crypto traders. 2022 however is not off to a good start. Therefore, it is good to understand the market situation/direction before investing.

This article will answer questions about the crypto bear market, such as; What is a bear market? How do you recognize a bear market situation? How should investors react to bear market conditions? What are some of the best crypto to hold in a bear market? What factors do you consider while trading in a crypto bear market?

Without further ado, let’s dive right in and understand what a bear market is.

What is a bear market?

In finance, the terms Bull or Bear market are used to describe the sharp increase or decrease of prices of stocks respectively. These terms are also applicable in the world of cryptocurrency.

Both terms are used to describe the direction in which each animal attacks. Bulls fight with their horns in an upward motion. This signifies an upwards shift (in prices) and subsequent investor optimism. Meanwhile, with their claws, bears tear things down. This downward motion describes the quickfire depreciation that can strike your favourite altcoin.

A crypto bear market happens when there is a sharp decline (at least 20%-30 30% from the previous high) in the prices of cryptocurrencies. A good example is the crypto market crash of 2018 that saw bitcoin fall from $20,000 to $3,200 in just a few days.

How to make the best of a Crypto bear market

Understanding the cause of a bear market will help you to better understand how to react. Inevitably, the seeds for a Bear market are planted in an exuberant bull market.

When investors buy large amounts of cryptocurrencies, their significant investments lead to general optimism in the market, and this causes prices to soar, leading to a bull market. However, the bull market only lasts for as long as demand exceeds supply. When profit taking starts and bulls run out of ammunition and no new catalysts for continuous optimists appear, we have bear market conditions.

It is like a recurring cycle, and intelligent investors know where to pitch their tents at every cycle point. However, this is harder to do for crypto than in traditional currencies. The reason for this is simple; Crypto markets are still relatively new when compared to traditional stock markets that have existed for several centuries.

Despite this, there are many other ways to make the best out of crypto bear market conditions.

Let’s look at five ways to make the best of a crypto bear market.

Diversification

There are times when a particular asset dips, and simultaneously, another one is shooting through the roof. Earlier this year was an excellent example of this; when Tesla’s founder, Elon Musk, announced that his company would stop taking bitcoin due to its carbon footprints. This move led to a reduced value of bitcoin, and simultaneously, the value of Dogecoin, heavily promoted by Musk, shot up.

If you have been investing in one kind of crypto currency, now is an excellent time to reconsider that stance. Bear market conditions are a great excuse to diversify your cryptocurrency portfolio.

Diversification is not only a great way to mitigate risks; it can also be a way to make a significant profit.

Hold Stablecoins

As much as it can be a good idea to diversify, you also need to hold stablecoins to ward off the bears. With stablecoins, you can enjoy lower-risk, high-yield crypto investments. If you convert your crypto into a stablecoin like USDC, USDT, FRAX and so on long enough, you can earn yields up to 10% through yield-farming protocols such as Yearn, and then with these returns, you can diversify further while maintaining your strong portfolio.

By investing in stable coins, you are taking less market risk. If you prefer to stay in pure crypto or have doubts about the regulatory environment for USD-backed stablecoins, your other option is to hold quality assets. The two most prominent coins which are, in relative terms, most likely to do less badly in a bear market are Bitcoin and Ethereum.

Compared to altcoins that have been known to drop 90%+ in bear markets, Bitcoin is an almost stable investment. By holding bitcoin, you can mitigate other risks, such as USD devaluation, and maintain exposure to the crypto market.

Ethereum is another stable crypto asset that could hold its own in a Bear Market. Becoming deflationary thanks to EIP-1559, an update through which ETH is now being burned for each transaction, as well as the imminent transition to Ethereum 2.0 are both fundamentally bullish news.

Buy the Dip

There are many opportunities to buy the dip during a bear market run. However, In buying the dip, you need to decide on entries beforehand and stick to your strategy to avoid emotions. This strategy is dangerous and is also known as ‘Catching falling knifes’. You never know how deep the market will drop. Hint: An automated trading strategy can help 😉

You also need to have a stop-loss strategy. This helps you set specific parameters that allow you to automatically enter and halt trades when prices go below a certain point in a bid to mitigate losses.

Think Long-term

When markets are in bearish conditions, prices are low. This period is a great time to consider long-term crypto investments. Although it may seem like a paradox to think long-term in a volatile market, it can lead to impressive returns.

For instance, anyone who invested in Bitcoin in March 2020 would have bought it at $4,000. By January 2022, this person would have gotten close to a 900% increase. Today, bear market or not, the price of 1 Bitcoin is much higher.

Therefore, the bear market can be a great time to consider long-term investments.

Invest in Proof-of-Stake (POS) coins

For cryptocurrency to work, computer algorithms need to reach a decentralized agreement on the state of the chain. This is how new blocks are added to the blockchain.

Proof of Stake (POS) is an algorithm used to reach a consensus on the blockchain. It is an alternative to the Proof of Work Algorithm (used by Bitcoin, Litecoin and until ETH 2.0 also Ethereum). However, POS has advantages as it requires less electricity and computer power.

According to Fool.com;

“Proof of stake is a type of consensus mechanism used to validate cryptocurrency transactions. With the system, cryptocurrency owners can stake their coins, which gives them the right to check new blocks of transactions and add them to the blockchain”.

In the POS algorithm, each person that has some coins stored in the system is a stakeholder. The more significant your stake, the more likely you will be selected (pseudo-randomly) to add new blocks to the blockchain. POS stakers get rewarded in coins.

In bearish market conditions, investing in Proof of Stake coins such as DOT, ATOM, and SOL and earning yield as a staker can be a good strategy.

When you stake your coins, you are locking them up, and you cannot trade them. However, they can help you earn interest and offset the downside risk.

Rounding Up

Although navigating a bear market is tricky, it can be advantageous for those who understand the market and know what to do in times like these.

Bear market conditions provide the right avenue to experiment and think of some long-term investments. In most cases, Bear market conditions come after periods of significant price increases in the market.

It is essential to understand that not all cryptocurrencies will reach their bottom at the same time. This is why you need to research and pay attention to the trends consistently. With a tool like Coinrule, you can monitor market trends and stay in the know.

This way, you can run strategies that will catch the right time to buy back particular crypto currencies and wait for the price to rise again.

Whatever you do, keep in mind that this is not investment advice and never ever have more in the markets than you can afford to lose.

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DISCLAIMER

I am not an analyst or investment advisor. Everything that I provide here site is purely for guidance, informational and educational purposes. All information contained in my post should be independently verified and confirmed. I can’t be found accountable for any loss or damage whatsoever caused in reliance upon such information. Please be aware of the risks involved with trading cryptocurrencies.