Crypto market sentiment is a key metric but few pay attention to this important aspect of the industry. When markets are up, green candles everywhere, euphoria and laser beam eyes but when markets go down, blood in the streets and cries roar for the devs to do something.
Cycles are a regular and normal occurrence in financial markets including crypto-currencies. The difference is the level of emotion, psychology and sheer velocity of change involved. Large sums of money are quickly gained and lost and historically the “hype” phases are short. Rather than focus on the “Up only” days let’s take a look at the dreaded bear market and how you can make the most of a painful but needed cycle.
A bear market can be described as a prolonged period of declining price action of a certain asset class/index. A decline of 20% or more and often followed by negative investor sentiment.
*Note this my opinion and none of this should be taken as financial advice. Always DYOR.
Benefits of a Bear market
By changing the focus from negative to positive you can learn a few things from past bear cycles. In order to prepare for future scenarios it is worth understanding the outcomes of the past. A few notable benefits come to mind.
-First and foremost they strengthen the industry. Looking back you can see that crypto has recovered from every cycle stronger and more robust than when it entered. Using metrics like marketcap, developer activity, and corporate adoption. Each cycle compounding on the previous shows consistent upward growth.
-They attract attention. When large sums of money are being thrown around with no logical explanation in mind people are naturally drawn to such an event. You could imagine the attention when those large sums of money are vaporized in the blink of an eye. Many are drawn into the volatility for the sake of the adrenalin rush.
-Washing out weak companies. In order to build strength and robustness of the industry some must fail. Companies that don’t deliver due to poor fundamentals and mismanagement are vigorously scrutinized in bear cycles. Capital becomes tight and only the strongest and well run survive.
-Pushing the boundaries. Ultimately bear markets force companies, technology and individuals to the edge. In such an environment innovation is bound to occur. In these periods you are able to see the little fractures that could become canyons. Exposing these now is a way companies and individuals can improve for the future.
Past Bear markets
A few notable events in the past that can be described as bear markets. Taking Bitcoin price as the key definer of these cycles.
- 2010 - 2011 BTC down 93% from ATH
- 2011 - 2013 BTC down 73% from ATH
- 2013 - 2015 BTC down 85% from ATH
- 2015 - 2018 BTC down 82% from ATH
- 2018 - 2020 BTC down 60% from ATH
- 2021 - present BTC down 51% from ATH
Considerable drops from ATH prices. Time frames of bear cycles differ from year to year. Lasting from only a few weeks to several years.
Creating a Plan
Nobody can time or predict these events and learning from past cycles can help you become a better trader, builder and creator as well as save you time and money. The worst thing you could do is nothing. Here are a few ways to make the best of these times to not only survive but come out stronger than before.
Dollar cost average
Sticking to a consistent investment strategy does wonders for your mental state. This is what DCA(dollar cost averaging) does. Especially powerful if you can automate this process. The idea is that you invest a set amount on a regular basis regardless of price. Allowing you to average out your purchase price instead of timing the market.
Staking
Staking tokens are a great way to put your idle assets to productive use. By locking your tokens to support the network you are rewarded with additional tokens. Some options include Cosmos, Tezos and Alogrand.
To learn more about staking Read More
Stablecoin/Farm
Stable coins are tokens that are pegged to a specific currency. The most common and utilized are USDT, USDC and UST which are pegged to the US Dollar. Their job is to reduce the volatility of your portfolio and preserve value. Being heavy in stablecoins during bear markets gives you an opportunity to ride out the waves without losing more than you already have.
Another stablecoin strategy known as Farming can not only improve your balance but actually profit. By supplying protocols with your stablecoins they will give you a yield on the balance. Currently you can find yields in the range of 1-20% There are many options for this and make sure to adjust for your own risk tolerance. As with everything in crypto there is a certain risk.
An excellent article on stablecoin farming.
Read Here
Learn a new industry skill
If you believe the industry will continue on and it’s not the end of the world then learning a new skill could have the best returns. The markets are down and the hype crews leave in droves. Want to learn about a certain protocol or how DeFi works? This gives you time to level up where you have been lacking. Here are a few skills worth learning if you want to be a better investor.
Technical analysis
Writing
Coding
Digital Marketing
Research
All of these skills can be learned online for free or for little cost.
Build a circle
Having a group of like minded peers or acquaintances to help you weather the storm not financially but mentally. We are all in it for our own reasons but joining a community will allow you to share knowledge, insight and ideas. As you refine your group this can become an invaluable asset in both good and bad times.
Final thoughts
As crypto continues to redefine the technological landscape, extremes are to be expected. Cycles are a naturally occurring event.
“Peak euphoria provides the opportunity for the world to dream about the future. Rock-bottom despair forces practicality and clarity.” - Fred Ehrsam.
In order for the growth and development of this space to continue we need the rise and fall cycles to bolster and define why this industry needs to exist. Having a long-term view will help keep your worries in check. There are many participants going through the exact same thing, be different, build resilience and see the opportunity in these times.
If you got something out of this and want to learn more about investing, cryptocurrency & finance:
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