Bear markets suck, I know. You’ve got a long and dark winter ahead filled to the brim with uncertainty. You have probably already lost money by not selling the top, and whether crypto will make a comeback is questionable at this point. FTX is done, a few more lending platforms like BlockFi and Genesis are filing bankruptcies, and cryptocurrencies are holding on for their dear lives. And the best part? All of this is not enough to kill Bitcoin.
Bear markets are simply market cycles. Much like bull markets, bear markets come and go. Prices falling down tremendously isn’t enough to kill the industry. News headlines might lead you to believe otherwise, but it’s nothing we haven’t heard time and time again in 2018, 2015, or during countless other bear markets.
Like any other winter, going through a bear market is all about survival. You need to preserve your existing capital and strategically place new investments at just the right time. Today’s article represents the ultimate guide to crypto bear markets, and it teaches you everything you need to know about surviving one in 2022.
What Is a Crypto Bear Market?
Bear markets are all I know. Back in December 2018 when I joined the industry, crypto was at the peak of its worst bear market at that point in time. Prices were extremely deflated, most people who took part in crypto have left the market, and almost no one outside of the industry was talking about digital assets.
Even when I joined Crypto Twitter and other places, I’ve noticed that the most crypto-centric communities were almost dead. And at that point I was having second thoughts. Will the market really come back after having such an explosive growth the year before? The most vehement supporters weren’t sure about a potential comeback, and to be honest, I wasn’t either.
That’s exactly what a crypto bear market looks like. Utter depression combined with uncertainty and disbelief. Absolutely no one enjoyed bear markets, not even the people who could handle trading within one. It’s not fun, and it’s ridiculously difficult to make money.
You have to be there to see it. And if I remember correctly, this moment right now is pretty much close to what I’ve seen back in 2018. But I know it didn’t take you to read this article to figure out you’re in one of the worst bear markets crypto has seen.
Low prices, panicky investors, and absolute disbelief that things will get better: these are the ingredients to a classic bear market. Most consider anything that’s 20% off from the latest highs a bear market, but for me, a bear market is a long period during which assets perform badly – facing price falls of up to -50% – coupled with fearful market sentiment. These are the real bear markets and they last anywhere from a few months to a couple of years.
Should You Buy During Crypto Winter?
Should you buy during a crypto bear market? This is a tricky question. Hell, buying during a bear market is tricky. There are almost no ways to tell if the bear market will be over soon, and placing an investment will have you worrying about facing another -20% price fall.
Yes, buying during crypto winter is generally a good idea. Many have bought during the bull market because the sentiment was great. But how many of those people wished they had bought now at $20,000 rather than at $60,000? Bear markets make crypto cheap and there’s no other time to buy highly speculative digital currencies with questionable fundamental value other than when they’re cheap.
The problem with buying is timing. You have no idea whether the market will dip another 20%. If it does your portfolio will only temporarily experience a plunge in value, right? Wrong. The market might dump another 20%, and then maybe another. People were saying $30,000 is a good price to buy, weren’t they? And we’re down almost 50% from that figure.
The key takeaway from this is that you should think about investing in a bear market. But if you’re going to do that, you need to invest the right way. That means timing the bear market the best way you can, and avoiding any potential red flags of things getting worse. Nothing you do will guarantee survival as things are out of control, but similar to investing in a bull market, there are ways to optimize your investments.
How to Navigate Crypto Bear Markets
So, how do you time the market? You don’t. You mostly hope and pray to God that the bear market is over soon. Jokes aside, there are a few guidelines you should follow that can help you time the market correctly. These tips fall into two separate categories: charts and sentiment.
Crypto Charts & Technical Analysis
The first thing you should do is take a good look at the chart. Charts combined with technical analysis help you grasp at which prices crypto will have support and at which resistance. Bitcoin leads the way, so observe the market and figure out if the price has already found support – or has strong support levels on the way down.
Above you see a weekly BTC/USD chart with a few horizontal support and resistance levels drawn out. The most important price level is the 2017 ATH. This price level determines whether Bitcoin is done for good or has the chance to revisit previous highs. You can see that the ATH served extremely well as a support level during summer. But FTX news broke the camel’s back and Bitcoin is below $19,000 ever since.
Right now we’re technically hanging in limbo. There are no well off support levels around the current price that would protect the market if a bigger player were to sell. But on the way down we have two major levels that have tons of liquidity.
First there is the 2019 top. This is a price level that acted as resistance on the way up in 2020 and marked the end of the 2019 mini bull market. If you look over to the 2017 bull market, you can see that the price level served as resistance there as well. Resistances turn into supports as you break them and vice-versa, so $11,540 should be a good level on the way down.
After that we have another horizontal price level that generally attracted a lot of liquidity and acted as both resistance and support from 2017 to 2020. $7,863 is another attractive price level – per TA standards – because a lot of money was exchanged at this price point (i.e liquidity).
Last but not least there is the $30,000 price point. This level acted as ridiculously good support during the bear market back in 2021. And on the way down this year, the level helped Bitcoin hold up onto its value for at least a few weeks before it broke down again.
Technical analysis proposes that Bitcoin could find itself in a full-fledged bull run should it trade above $30,000 again. But we’re a long way from that level, and there are more worrisome things ahead of us.
So how does analyzing charts help us navigate and time the bear market? Reading charts helps you understand which price levels help Bitcoin stay up and which prevent us from going up. Price levels that have historically acted as either resistance or support might very well do so again in the future.
Instead of buying at random prices, you might want to wait and invest at a moment where Bitcoin has better support at higher time frames. That means buying Bitcoin once it surpasses an old resistance level (thus flipping it into support) or once Bitcoin falls down to an old support level. To make my advice simpler: buy at a good support level if things get worse or buy at a good resistance level if Bitcoin shows strength.
Keep one fact in mind: technical analysis is not 100% accurate. People can have different impressions all while looking at the same chart. And these support or resistance levels will not hold up as planned in the case that important market news pops up – think of what happened in March 2020!
Market Sentiment & News
Charts and market sentiment are kind of like yin and yang. You can’t have one without the other. And in bear markets, only focusing on one is a great way to invest at the worst time possible. So don’t simply master technical analysis and chart Bitcoin, also observe sentiment!
Market sentiment is the general feeling that investors signal on social media. There is even an indicator called Crypto Fear and Greed Index that shows sentiment based on data points such as price levels, social media posts, social media activity, etc. You can use sentiment to determine how far down in a bear market the industry is.
If you remember the talking points of your favorite Crypto Twitter influencer, you might remember that that person was not really worried about $30,000. To be honest, market sentiment on Twitter was not even bad at that point. There might have been slight fear, but nothing that can kill your hopes and dreams.
Now that Bitcoin hovers around $16,000, the market is almost in a state of depression. And remember: bear markets are extremely depressing at their lowest points. You want to see absolute despair if you want to time the market right. Why? Because you need to figure out that all sellers are exhausted.
Selling exhaustion implies that no one is willing, or has any more coins, to sell. This is the core thesis behind the RSI indicator. Stable prices require an equal level of selling and buying. So if there is too much selling going on, prices will be volatile. But like I mentioned at the beginning, bear markets are simply market cycles. They can’t go on indefinitely.
Use market sentiment to your advantage while timing the market. See what your crypto friend has to say, read a few posts on Crypto Twitter, visit a few crypto subreddits, or ask a friend outside of crypto what they know about the market. And when you’re done checking sentiment, it’s time to read the news!
Many news-based events bring volatility in crypto. Michael Saylor’s spree of Bitcoin acquisition announcements in 2020 is what pushed markets up. On the opposite end of the spectrum, Sam announcing FTX’s bankruptcy is the final straw that pushed Bitcoin down after months and months of endlessly moving between $19,000 and $24,000.
Events have a huge impact on market prices, especially at times when there is little to no volatility. Reading the news can help you buy or sell at a good time, but it can also give you long-term insight into the industry’s health.
An example of bullish news would be institutional investors coming back to crypto, or miners announcing setting up new mining farms. On the other hand, something very bearish would be developers not having enough funds to continue building out their project, or crypto firms announcing bankruptcies.
5 Great Tips for Surviving Crypto Winter
Surviving crypto winter is all about timing the market and not investing too soon or too late. Analyzing charts, reading news, and observing market sentiment can help you with investing and walking away with minimal harm. However, there are a few more things you want to consider if you want to survive the bear market.
Cryptocurrencies may experience bubbles from time to time, but they don’t live in one. Crypto assets are sadly closely correlated to traditional financial markets, such as stocks. Bitcoin has a tendency to follow the S&P 500 Index closely whenever it is in a bear market. But apart from correlation, there is one more reason to observe stocks.
If the stock market is healthy and in a good place, it’s more likely that the crypto market will bounce back as well. Cryptocurrencies do not fare well during financial crises, and Bitcoin has never faced an event like 2008 before. But the COVID stock market crash was enough to prove that crypto investors do not want to speculate if TradFi is having a hard time.
You better keep a close look at stock markets if you want to survive this crypto winter. Crypto will perform well if stocks do. And if TradFi investors earn money from stocks, they’ll have extra capital left for the crypto market. The same goes for institutional interest.
2. Diversify Your Portfolio
The best time to diversify your portfolio is during a bear market. Cut away the losers that failed your expectations during the bull market and rebalance your portfolio so that a huge altcoin exposure doesn’t wreck you. You can also do some fundamental analysis and discover new and promising altcoins.
The best way to diversify your portfolio is to change your allocations and leave more capital into assets with greater fundamental value, like Bitcoin and Ethereum. And like I said earlier, you should also switch out a few altcoins and invest in new ones if you discover any new narrative.
3. Dollar-Cost-Average (DCA)
Dollar-Cost-Averaging (DCA) is an investment strategy that helps you negate volatility by distributing your capital over a long time period. A DCA strategy can be as simple as buying a little Bitcoin every other week.
Rather than investing a huge amount of capital in one go, you can simply DCA and spread out your risk. DCA is especially important during bear markets because it helps you negate the side effects of timing the market at a bad time. Bought some Ethereum and it fell 20%? Great, you’ll buy another small stack at this lower price.
Your existing crypto doesn’t have to be a stale asset with no utility. You can put your crypto to good use by deploying liquidity in various protocols or platforms that help you earn interest. Strategies like yield farming and lending enable you to earn crypto by utilizing existing crypto assets, but at the price of exposing yourself to risk.
The risk in question is called impermanent loss (IL). Liquidity providers experience IL when the asset they provide as liquidity loses or gains too much value from the moment it was deposited. However, there’s one more risk that everyone’s recently aware of: your protocol or platform of choice can run away with your money or go bankrupt.
Think twice about utilizing your cryptocurrencies. It might be good to earn money in a bear market by lending it to someone. But you can lose everything you gave away if the platform you choose faces liquidity issues. Just think of all the BlockFi customers who can’t access their funds anymore.
5. Spread Your Assets Over Multiple Wallets
Liquidity issues introduce a few security risks as well. That’s why you need to think smart during a bear market and spread your assets over multiple wallets. Remember, the market is not your only enemy. Other people (mainly crypto executives) can hurt you too!
I recommend having a main hardware wallet where you’ll store your assets. If you trade regularly, you should spread your assets over multiple exchanges in order to not get caught with another FTX-esque event. And if you’re providing liquidity, do a double check on the platform and think hard about whether you can trust them with your money.
One last thing about DeFi is that you should probably keep your lending and liquidity providing activities to a minimum. Bear markets are tough and developers may or may not have enough runaway time to keep their project up. So to minimize risk, minimize your DeFi exposure as well.
If you want to learn more about bear markets and how to survive them, I recommend reading the following articles:
Marko is a crypto enthusiast who has been involved in the blockchain industry since 2018. When not charting, tweeting on CT, or researching Solana NFTs, he likes to read about psychology, InfoSec, and geopolitics.