Eight Tips on How to Survive in a Bear Market
What is the ideal portfolio to survive a bear market?
This article is for anyone who is an investor in cryptocurrencies, or any kind of assets that are changing in price, to provide some of our top tips for managing the bear market. Bear markets are downturns in the market that can last many years. It’s important to remember that it’s much more difficult to invest in a bear market and that you shouldn’t over-leverage yourself as it’s very easy to lose a lot of money if the market continually drops.
In a bull market, or when the market is continually increasing, it can be very easy to be a good investor. There is a common saying that goes around that “in a bull market, everyone becomes an expert!”. The following are our tips to follow when investing in a bear market.
TLDR Tips:
Don’t over-leverage yourself by over-investing or using borrowed assets
Don’t catch a falling knife — you will have lots of time to invest, take it slow
You can earn passive yield on your stable coins by farming, but be aware of the risks
Don’t pool your stable coins with risky assets in order to avoid the impermanent loss
Evaluate your long-term holds & understand the market needs
Don’t Try to Time the Market
Now that the bull market has passed, we can explore some tips to investing in a bear market. The first tip is never try to time the market. The bear market can last a lot longer than you expect, so never put all your money in too early or you might be left with nothing to add as the market keeps dropping. John Maynard Keynes, a famous economist, said it best with the quote “the market can stay irrational longer than you can stay solvent”. This means you can be right that the market or sector is undervalued, but wrong on the timing. Some markets have been in bearish trends for many years, such as the Japanese stock market which has been trading sideways for over 15 years.
Dollar Cost Average
Our next tip is to dollar cost average (DCA) into the market. This is an investment strategy in which an investor will divide up the total amount to be invested across periodic purchases of an asset or assets in an effort to reduce the volatility of the over purchase. If you have a long term vision in Ethereum, you will want to dollar cost average over the course of the bear market, instead of trying to time the bottom and buying a lump sum. This prevents you from purchasing the asset at a price that’s too high, or missing the increase in price if it has a rally.
Diversify to Lower Risk
Our third tip is to lower risk by diversification. The best investors in a bear market will lower their risk by any means necessary to reduce the volatility to the downside. You can do this by diversifying into different markets, different assets, or different cryptocurrencies. It is important to remember however that when the crypto market is going down, all the assets trend together in most cases. The ones with the largest market caps will generally have the least volatility. With that in mind, the best assets to lower your risk in the crypto market would then be Bitcoin (BTC), and Ethereum (ETH). Some alt coins can drop as much as 95% or more in the bear market, even if they have strong fundamentals. It can be lucrative to find these tokens once they’ve bottomed out, but remember to not catch a falling knife and to always dollar cost average into an asset. Also keep in mind that these assets can trend sideways for months to years, so there’s no rush to put all your funds into an asset just because it’s down from the all time high a very large percentage.
Earn a Passive Yield
Another tip is around stable coins, and putting your money to use to earn you a passive yield. If you hold stable coins, which you should in order to DCA into assets, then you can earn a passive yield on them. Protocols such as Curve Finance, offer you a yield for providing liquidity on their platform, usually in the form of a pool of stable coin assets. The most popular 3pool contains USDT, USDC, and DAI. It is important to remember there are some inherent risks with this though. There is the possibility of a smart contract breach, in which your funds could be hacked from the staking contract, and there is the risk of the assets. The asset risk is the risk that the stable coin is not pegged 1:1 with other stable coins. This happened earlier this year with Terra Luna’s UST depegging, and now UST is worth almost 0. So be aware of the stable coins you are pooling, and that you take on some risk by staking these tokens. On the positive side, you’ll be able to earn around 5% on your stable coins, and in some cases a bit more. Always be aware of the risk though.
Furucombo also offers returns on stable coins. This can be achieved through using Invest mode to pool your funds in any of the auto-compounding stable coin farms such as USDC/DAI, USDC/USDT, DAI/miMATIC, etc. Additionally, Furucombo Invest also offers Funds, which are managed funds by experienced fund managers. One such fund is the ‘Stable Yield Chasing Fund’ which is focused around stable coin investing. These are both good options for diversification into earning a passive yield on your stable coin positions.
Don’t Combine Stable Coins with Volatile Assets
This tip is to not pool your stable coins with risky assets. Generally, stable coin and asset pairs have a much higher return when staking, but it is subject to much higher volatility, as well as impermanent loss. If one of your assets goes down majorly because of the bear market, you will be left with far less stable coins in your pairing, and also subject to a large amount of impermanent loss. Impermanent loss occurs when there’s a divergence in the price of the assets that you’ve pooled. Because a stable coin is always the same value, when the risky asset goes up or down in price by a large margin, you are subject to a very large amount of impermanent loss. Therefore, especially in a bear market, it is recommended to keep your stable coins separate from your risky assets in order to keep them stable so that you are able to use these funds to DCA.
Continually Evaluate Your Long-Term Holds
Our final tip for our guide on how to survive the bear market is to continually evaluate your long-term holds. Check the progress on developments and milestones, and ensure your investments are still on track to achieve what they set out to do. With cryptocurrency, it is a highly competitive market, so ensure you are doing your due diligence to understand the market conditions, and which assets might have the best chance of surviving in the long term. Another important lesson is to not marry your bag. Meaning, just because you’re down heavily, or you really like a project because its made you gain in the past, just remember that things can change and you shouldn’t get attached to a project. Past performance is not indicative of future results.
These are our recommended tips to follow during the bear market. We hope you found this information informative.
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