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How To Skillfully Pivot & Invest During Crypto Bear Markets?

Author: Jeffrey Craig Date: June 27, 2022

Low gas prices, functioning supply chains, high consumer sentiment, business investment (FAI), solid earnings, and rising stock markets are all part of bull markets and healthy economies. But unfortunately, not all markets are linear – they’re in fact cyclical. Cryptocurrencies in particular, although new compared to traditional finance, also get hit hard by the economic cycle.

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While day trading can be fun and exciting, both long and short-term investors should be aware of the macroeconomic conditions and the stage of the economic cycle they’re in. Currently, as of spring 2022, the world is entering a new economic cycle – one marked by rising interest rates.

Crypto Bear Markets 101

Bear markets and recessions are an investor’s, a consumer’s, and an economist’s worst nightmare. Crypto bear markets in particular are especially brutal, causing billions of dollars worth of losses.

Crypto bear markets are long periods of huge declines followed by steady drops in the prices of most cryptocurrencies. The most recent bear market started in February 2018 following the crypto-craze of late 2017 that pushed coins like Bitcoin and Ethereum to new highs in the $19,000 and $1,500 price ranges. Then, from 2018-2020, there was a long period of price declines for many cryptos which caused their subsequent downfalls. The chart below shows the bear market that lasted from 2018-2020.

total crypto market cap and volume

Are We In A Crypto Bear Market?

The state of the global economy today with fractured supply chains, weaker demand, ballooning debt, rising central bank interest rates, and declining stock markets indicates that we’re currently in a bear market. This is also supported by the current fall-off in the cryptocurrency markets, which hit their highs in November 2021. But the largest declines didn’t come until early 2022 when the United States Fed began its tapering/quantitative tightening program. Coupled with unsustainable DeFi yields, poor VC and hedge fund risk management practices, and the crises from algorithmic stablecoins, one can say confidently these are signs of a bear market.

How Long Will This Crypto Bear Market Last?

It’s impossible to accurately predict how long the current bear market will last, but going by past estimates it could last as long as two years.

However, there are a few events to watch that may impact this prediction: Fed slowing or reversing rate hikes, the 2024 Bitcoin halving, government adoption, and Twitter integration.

If the US Fed decides to cut back its aggressive rate hikes, this will likely have a positive effect on cryptocurrencies and may subsequently reverse their declines.

Secondly, in 2024 at the time of the next Bitcoin halving, in anticipation of this event where supply decreases and demand increases, prices generally react to the positive.

Thirdly, increased government adoption may cause a demand surge for cryptocurrencies, in particular, if the US Republican Party comes out in support of Bitcoin or crypto innovation, or if larger countries in Europe enact favorable cryptocurrency regulations.

Lastly, is Twitter integration. Elon Musk has been a fervent supporter of cryptocurrencies, and his investment in Twitter may be a leading domino to cause greater in-app integration and influence other companies such as Google, Amazon, and Apple to quicken their cryptocurrency ambitions.

So if any of these happen, we may see a sooner-than-expected reversal in the market.

Building A Crypto Portfolio & Keeping Your Portfolio Resilient

A financial advisor is always recommended for those looking for investment advice on specific investing and trading strategies, but for the sake of this article, which includes educational purposes about the principles investors can apply to increase their chances of being a successful trader and investor.

First, building a crypto portfolio that’s resilient to shocks is what current investors should strive to do. For example, choosing a mixture of large and small coins, diversifying between sectors such as currencies, gaming, metaverse, stables, DeFi, L1s, and L2s – as well as employing safe trading strategies that avoid going all in, that avoid risky high leveraged long or short positions, and strategies that avoid ownership of specific coins.

Financial advisors recommend diversifying a portfolio during bear markets to ensure that not all investments are in crypto. You’re also less likely to experience a major disaster with a diversified portfolio if one asset performs poorly.

However, crypto investors can also diversify their crypto portfolios by looking to invest in new projects while also focusing on coins with a good history.

Another good investment strategy for diversification is staking.

Safest Bear Market Crypto Trading Strategies: Staking

During crypto bear markets, staking is an easy-to-use strategy that boosts long-term portfolio value. Staking also helps reduce the tendency to obsess on a daily basis over changing prices. When investors overreact to fluctuations, they face a greater risk of emotionally influenced decision-making.

In particular, staking these top staking coins can help investors earn extra income during crypto bear markets.

Moreover, many Layer 1 protocols allow the staking of native tokens on their networks for yields. For better outcomes, it’s important to develop a staking strategy only after selecting projects that are fundamentally sound.\

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Is Staking Crypto Worth It & Safe?

The staking mentioned in the above section refers more to DeFi, however, there’s a crypto CeFi equivalent to staking which is opening a savings account on an exchange like Phemex. Phemex has an Earn Crypto product which is great for earning interest on your cryptocurrency held on Phemex.

Staking crypto on an exchange is certainly safer than staking it in a centralized DeFi protocol or on a personal hot wallet service. That’s why many people choose Phemex to not only trade cryptocurrencies but lock them up for a fixed interesting-earning time period.

Advanced Options: Shorting & Futures

For advanced traders, shorting and longing cryptocurrencies are another choice that is often employed in bear and bull runs. In the past month, many investors have been shorting cryptocurrencies very heavily, which has resulted in increased down pressure on the prices than would have normally occurred under normal circumstances. But the combined events of Terra’s stablecoin, 3AC, Celsius, and BlockFi created a shorter’s dream in betting on falling prices.

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Where To Short Crypto?

For traders looking to short cryptocurrencies, they can go to the Phemex contract trading tab and search for the cryptocurrency they are interested in trading and shorting.

Conclusion

Every bear market is different, therefore it’s important to stay up to date with the current trends happening in the market as well as the economic cycle and overall sentiment in the market. Each trader and investor reacts differently in bear markets, so there’s no one-size-fits-all strategy, but participating in staking and other CeFi interest-earning activities to diversify one’s portfolio may be the safest bet in the current market.


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