Bear markets can be frustrating for investors, but they can also be an excellent time to invest at lower costs. They are not as bad as traders and investors make them out to be.

During a bear market, there may be opportunities to enter the market with less risk, higher profits, and “dip-buying.”

On the other hand, bear markets frequently result in highly volatile price movements and losses, so without conducting the necessary research, one could easily incur massive losses during these times.

This article comprehensively examines a cryptocurrency bear market, its phases, and what you should do during this period.

The State of the Market Today

We are already experiencing a bear market, and the recent issues with Luna have exacerbated the situation. Cryptocurrencies like Bitcoin and Ethereum have crashed to less than half of their most recent all-time highs. As of June 27, 2022, the value of the global cryptocurrency market had fallen by 67% from its all-time high of $3 trillion.

Furthermore, on May 8, the entire Terra ecosystem collapsed, resulting in one of the most destructive price crashes of $LUNA and $UST. The largest decentralized stablecoin by market capitalization, $UST, lost its peg due to the arbitrage system’s failure. Similarly, a surprise attack devalued LUNA by more than 99%.

Experts also believe that several other factors, such as the US government’s decision to raise interest rates, widespread inflation, restrictions, and laws in various countries, have all also contributed to the current bear market in cryptocurrencies.

What is a Bear Market?

A bear market occurs when the prices drop significantly over an extended period. Bear markets are often preceded by significant drops in broader markets or indexes. The entire market looks to Bitcoin and Ethereum, the two most prominent cryptocurrencies in the field of cryptocurrencies, to set the tone for the markets.

If the price of cryptocurrencies falls by 20% over an extended period of time, typically two months or more, that situation is also referred to as a “bear market.”

Phases of a Crypto Market

There are typically four main stages in bear markets:

Accumulation Phase

The accumulation phase is the start of a new phase or the end of a previous phase in which the market has already bottomed out. At this stage, early adopters or insiders start to invest in new, promising projects.

The market has bottomed out because weak hands have sold and smart investors start investing because they believe the worst is over. At this point, the cycle’s lowest price has been reached, and a new cycle begins; many people refer to this as “buying the dip.” This event is also marked by a shift in market sentiment from negative to neutral.

Run-Up Phase (or Bull Market)

This is the phase where the market begins to rise steadily toward higher highs. At the beginning of this phase, technical analysts start paying attention to projects, and at this point, the “early majority” enters the market.

It is evident where the market is headed and that the overall sentiment of the market is positive. As this phase comes to an end, the fear of missing out (i.e., FOMO) increases as more and more investors buy at the top of the market to avoid losing out.

The late majority’s entry into the market, which results in a significant increase in market volume, also signals the end of this phase.

Distribution Phase

During the distribution phase, the price reaches a plateau, and sellers begin to take control of the market. The market enters this phase when the previous phase’s bullish emotions change to a mixed sentiment.

Trading will take place in a restricted range that may last for days or weeks, and the price will appear to plateau as the velocity of the price slows. When the market recovers, this phase will come to an end. This is the time to look for traditional TA (technical analysis) patterns such as head and shoulders, double tops, or triple tops. These patterns indicate a change in market direction.

Run-Down Phase (or Bear Market)

The run-down is the final stage of a market cycle. This is the most challenging and emotional time for most investors. The cryptocurrency markets appear to be experiencing a period of social media pumping, with the firm belief that the price will continue to rise.

Waiting for the next price increase is an option, but doing so may significantly reduce your return on investment and limit your options for future investments.

Phases of a Crypto Bear Market

The four phases of a crypto bear market include:

Phase 1

This phase is characterized by high prices and high investor sentiment. As this phase comes to an end, investors start to leave the markets and take their profits. This phase is commonly referred to as the “recognition” phase.

Phase 2

This phase is characterized by a dramatic decline in prices, a drop in trading activity and corporate earnings, and a decline in previously strong economic indices. As sentiment starts to decline, some investors start to panic.This phase is commonly referred to as the “panic” phase.

Phase 3

Speculators begin to enter the market in this phase. This makes the prices of some cryptocurrencies increase and also increases trading volume. This phase is also referred to as the “stabilization” phase.

Phase 4

Prices continue to fall in the final phase of the crypto bear market. The bear markets will start turning into bull markets when investors find the low prices and news favourable. This phase is also referred to as the “anticipation” phase.

5 Things To Do in a Crypto Bear Market?

Buy the dip using Dollar Cost Averaging (DCA)

It’s all too easy to be on the wrong side of a crypto deal when markets are extremely volatile, but that doesn’t mean you have to sit back and watch your portfolio suffer. Investors with a reserve of fiat money, stablecoins or spendable funds in their bank accounts can “buy the dip.”

Dollar Cost Averaging is the practice of purchasing more cryptocurrency whenever the market falls. The idea is that if prices return to their earlier highs, dip buyers will profit handsomely.

This is consistent with Warren Buffett’s famous stock investing statement, “Buy when there is blood on the streets.” Assume you have $2,000 in cash reserves, for example.

Breaking the sum down into five $400 tranches or even ten $200 tranches and trading with those smaller sums would be an excellent DCA technique.

The idea is that it is usually better to buy a small amount and wait to see if the asset’s price falls any further rather than spending all of your money at once. In most cases, doing so will yield far better results than putting all your money into a single trade unless you are fortunate enough to go all-in at the right time.

Short-sell when the price of a specific cryptocurrency falls

Short selling is a complex financial strategy that should only be employed by experienced investors. Short selling is the practice of selling an asset at a premium in order to buy it later at a lower price. When the value of the assets they sell in the short term falls, crypto traders can make significant long-term profits. Even for those new to cryptocurrency trading, repurchasing coins is much easier.

Like all other traders, cryptocurrency traders want to buy low and sell high. However, this is not the case with cryptocurrency short-selling strategies. Even if the market is in a decline, traders can still profit from short selling.

In practice, traders are required to borrow a specific cryptocurrency at the current market rate and immediately sell it. They make significant profits when prices drop, and they repurchase the cryptocurrency at the newly altered lower market rates. The broker will return the borrowed amount. The profit the traders retain is the difference between the old market value (selling price) and the new market value (buying price).

Diversify crypto investments.

There are over 17,000 cryptocurrencies available on the market. Nobody can predict which cryptocurrency will recover first. The duration of the crypto bear market is also difficult to forecast.

DCA can be used for a wide variety of crypto assets. You may need to reduce the size of your trades, lowering your overall risk. Don’t just choose a cryptocurrency and start trading it. Instead, spend time learning about which one(s) is best for you.

Use indicators to determine the right entry point.

Investors adept at technical analysis can use specific indicators to determine whether or not an asset has reached a bottom. Technical analysis involves projecting an asset’s price movements based on chart trends, indicators, and patterns.

Of course, no indicator is 100% reliable, but they frequently provide a clear indication of when to buy a dip.

The most common strategy involves the use of the Relative Strength Index (RSI) indicator.

Don’t worry too much about selling.

Keeping emotions under control during a bear market is difficult. According to experts, it is the most difficult aspect of continuing with professional trading. People who cannot control their emotions will never be able to make their investments pay off.

When prices fall significantly, human nature compels us to cut our losses. However, doing so will not result in a long-term profit. At this point, traders must relax and regain confidence by recalling their original motivation for investing in cryptocurrencies. Investigate the causes of the price decline, learn more about them, and devise solutions. Consider whether their previous conclusions are still valid in the face of market demands and then develop a new strategy for massive returns.

In Conclusion

Knowing the market cycle and its phases is a critical and prudent strategy when deciding when to buy or sell in the extremely volatile cryptocurrency markets.
While there is no need to worry during a bear market, ensuring that your portfolio is adequately diversified and de-risked is expedient. Be aware of the amount at stake and the amount of time you have to make up for any losses.
Regardless of the type of investor or trader you are, financial setbacks are inevitable. However, if you employ the techniques discussed in this article, your chances of being hacked down by crypto bears will be much lower.

Disclaimer: This article is intended solely for informational purposes only and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.

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