The Crypto Bear Market in 2022: How to Make the Most of a Downward Trend

a bear with mouth open on a gold ground with a Bitcoin next to him

For any crypto investor, experiencing a bear market can be a real nightmare. However, it doesn’t have to be that way. Follow our simple steps and discover new ways you can make the most of a downward market trend.

What is a bear market?

First things first. You might have heard about a bull and a bear market and wondered why these animals are appearing in a financial market article.

Well, a bull run is when the market is experiencing an upward trend and prices of assets are rising. On the other hand, a bear market is when the market is experiencing a downward trend and assets experience a fall of 20% or even more. 

What causes a bear market in the crypto industry?

As with any assets, the price of cryptocurrencies may drop due to a variety of reasons. Some of these are supply and demand, competition, new legal regulations or a change in national policy. 

Cryptocurrencies are notorious for being volatile. If you are one to analyse market news from the crypto industry, you will notice a number of factors can cause the value of leading crypto assets to plummet.

A tweet from Elon Musk, the introduction of new altcoins, as well as China (yet again) banning cryptocurrencies can all lead to a crash in the market.

A chart with a dip in the middle and a blue arrow going down in the dip

A crypto bear market in 2022

Over the first 3 months of 2022, the price of Bitcoin has dropped more than 40% since a record high in November 2021. In a recent article by Time Magazine, Bill Noble, chief technical analyst at Token Metrics, claimed that volatility is not going anywhere and fluctuations are to be expected.

Despite short-term rallies in late February 2022, the future, for the moment remains uncertain. Fears that the Federal Reserve will raise interest rates, as well as the expiration of Bitcoin futures contracts in late April, might continue the downward trend for longer still. 

Moreover, recent political developments such as Russia’s invasion of Ukraine has continued wreaking havoc not only on vulnerable citizens in various sites in Ukraine but also on the financial markets, including cryptocurrencies.

Can you exploit the bear market in crypto?

Yes, most definitely. However, keep in mind that it is easy for beginners just starting out to make the wrong decision, resulting in losses. So make sure you tread carefully. 

4 Tips to Ace the Crypto Bear Market 

1. Keep your emotions in check

As any great businessman or financial investor knows, staying in control of your emotions without panicking is a must when the market is on a downward trend.

Investors are now recognising the importance of psychology when buying and selling assets, especially cryptocurrencies, due to their high volatility. Do not underestimate its importance and make sure that your emotions are in check before taking any drastic decisions.

Scheduling a quick mindfulness exercise such as meditation or going for a run before making a trade can go a long way in determining a win or a loss when buying or selling cryptocurrencies.

2. Steer away from uncertain altcoins

When the whole crypto market is suffering and all the coins seem to be dropping in value, it is best to focus on the most stable coins, especially if you are just starting out as a crypto investor. 

This usually refers to either coins that have been around for quite some time such as Bitcoin or Ethereum or altcoins that have gained a great number of followers.

Having said that, this does not mean that these coins won’t be affected by a bear market. However, they are more likely to bounce back from a volatile and downward trend in the market.

3. Breathe in and just hodl on

A buy-and-hold approach is a tried and tested approach that has long been a stock market strategy. The HODL strategy simply asks you to not panic sell and just hold tight and ignore both the price dips and surges. Hodlers over the years have been proven right as they weathered the storm by simply doing nothing.

Over the last ten years, Bitcoin has experienced several ups and downs; however, no one can deny that whoever invested in Bitcoin ten years ago and didn’t sell, has been rewarded royally. So just hodl on, you’ll get through this.

a candle chart set on a blue background with the words But The Dip on it

4. Assess whether you should buy the dip

Buying the dip is when investors purchase an asset after its price has dropped. This is usually done because the investors believe this is a temporary trend and that in time, the market will bounce back. As a result, investors make a profit given they bought the asset at a lower price than usual. 

It might sound like a great tactic to employ the buy low, sell high strategy. However, there are some things you need to consider before you ‘dip’ your toes (see what we did there?).

Before you decide to buy during a downward trend, you should ask yourself these questions:

A. Can I afford to lose what I invested in it?

Due to cryptos’ unpredictability, experts recommend investing not more than 5% of your portfolio towards these assets. So before you buy an asset, ask yourself, will this asset’s value break my finances?

B. How long will the asset take to bounce back?

You can never accurately predict when or if an asset’s value will start rising again, especially when it comes to cryptocurrencies. It goes without saying, but making sure you do your research well will help you make a more informed decision as well as prepare you for what to expect. 

Taking all these things into consideration will make sure that you make the right decision for yourself and your finances.

C. What are other investors doing?

If you’re an active trader who buys and sells crypto with the aim of profiting from market movements then the market sentiment is a very important factor to consider when making decisions.

Are there positive or negative perceptions present with regards to the current dip? What are other traders doing? Make sure you check Reddit threads and other social media channels to analyse what your peers will do.

While you should not base your decision solely on what other investors are doing, being aware of others’ decisions can help you gauge how long a dip will last (if a considerable amount of investors buy the dip, the asset is bound to rise again sooner). 

If you do decide to buy the dip, make sure you learn about the different strategies you can employ, such as dollar-cost averaging, market timing, and using indicators that can help you predict the market better.

All in all, a crypto bear market might be a stressful time for any investor. However, it can be a great opportunity if you manage to take control of your emotions and make a well-informed decision based on your finances and capabilities. Good luck out there!

As always, this article does not constitute financial advice and you should be sure to do your own research and consult a professional financial advisor before making any investment decision.

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Frequently Asked Questions (FAQs)

1. What is a bear market?

A bear market is when the market is experiencing a downward trend and assets experience a fall of 20% or even more.

2. Will there be a crypto bear market in 2022?

Experts are suggesting that yes there will be a bear market in 2022, however, how long it will last is open for debate. In the first quarter of 2022, cryptocurrency values have plummeted substantially.
Concerns that the Federal Reserve will raise interest rates, the upcoming expiration of Bitcoin futures contracts in late April, as well as the war in Ukraine are all factors that are currently weighing the markets down.

3. What are the four tips to ace the crypto bear market in 2022?

Be aware of your emotions and take steps to keep them in check, steer away from new and uncertain coins, consider hodling through the bear market, and assess whether you can afford to buy the dip.