Crypto bear market is not uncommon – with Bitcoin down almost 25% since its all-time high in April 2021, there have been multiple setbacks in its bull run since the beginning. Just in 2021 alone, cryptocurrencies have faced much adversity in its pursuit of growth valuation – from countries such as China taking a tough stance on cryptocurrencies to news of crypto exchanges and wallets being hacked, market selloffs happen when negative news are splashed all over the internet. However, it begets the question of why are investors holding cryptocurrencies as an investment in the first place – a belief in the technology and its potential in application, or simply just out of pure speculation? For investors in favour of the former, we have great new – here are some tips for you to consider as you shift gears in the way you make critical investment decisions. This article seeks to promote several strategies which allows you to take full advantage of the next crypto bear market, and emerge stronger.
In essence, there are 3 key strategies to enable survival, and even thrive in a crypto bear market. They are namely crypto diversification, buying the dip and investing via liquidity pools. Crypto diversification allows for investors to take on a balanced approach by allocating resources across different crypto asset classes, ensuring stability against market volatility. Buying the dip and selling rallies is a straightforward approach, where an investor buys into an asset at a low price, and takes profit when the asset prices up. However, as simple as it sounds, timing the market requires skilful identification and valuation of the right asset class. A wrong move could prove costly in the long run, should the market not swing in your favour. Lastly, optimising assets through investing in liquidity pools allow for savvy investors to truly take advantage of the crypto bear market, as investors are able to still earn interests while holding onto assets. While these suggested methods are new ways in navigating through uncertainties, we strongly advice investors to do their due diligence when making decisions in their investments.
Strategy 1: Crypto Diversification
Don’t put all your eggs in one basket – the old classic behind the very fundamentals of portfolio diversification. Crypto diversification provides a cushion on your investment risks through providing a wide exposure across different assets and markets. By allocating resources accordingly, investors are better hedged against market volatilities especially in a crypto bear market.
In crypto diversification, the main goal is to find uncorrelated market growth opportunities across asset classes. Under similar circumstances and environment, the performance of one asset class should be largely independent of the performance of another asset. The assets which you invest in should have vastly differing price movements, and it is completely normal to have gains being offset by losses in another asset class. For instance, an investor should not just allocate all his crypto holdings in a single cryptocurrency like Bitcoin, but rather explore other forms of crypto too. This is because by placing all of one’s investment in only a few specific asset classes, it results in over reliance on the portfolio’s performance to those few assets. While the gains may seem attractive in a bull market, we are preparing our portfolio to weather against a bear market as well. A well-diversified crypto portfolio would comprise of allocations across many assets, be it asset-pegged altcoins, Non-Fungible Tokens (NFTs) or cryptocurrencies. As mentioned, investing in an alternative asset class like NFTs would be great for crypto diversification, as price movement of NFTs are largely uncorrelated to cryptocurrencies. This is because NFTs are unique in nature, and the tokens are irreplaceable and non-interchangeable. Crypto diversification allows for organic and sustainable growth of your portfolio, with diversified risk levels to each asset class which allows you to strive even in a crypto bear market.
To further diversify any portfolio, investors may also consider cost dollar averaging their holdings. Cost dollar averaging your portfolio increases your position in a particular asset without having to commit to a large investment upfront. With periodic investments in fixed amounts, it aims to improve crypto diversification via taking advantage of market downturns with less capital, and offsetting negative impacts caused by short term market swings. Cost dollar averaging in a crypto bear market not only helps to avoid risks of mistiming the market, it also eliminates emotion-based investment decisions in a volatile environment. Cost dollar averaging is a great strategy for investors with a positive long-term outlook in the particular asset class, allowing for investors to build wealth over time.
Strategy 2: Buy the Dip, Sell the Rallies
A fairly straightforward approach, buying the dip is to simply accumulate crypto at a lower price or discount as compared to its all-time high price level. Investors are then encouraged to let go of their asset when they sell it off at a higher target price, taking the difference as profits.
Buying the dip is most commonly deployed especially after a negative news, since most price shocks occur when news media has exaggerated the negative implications of a certain new regulation, or sensationalise to stir and evoke emotions of readers. This is an effective method to capture fast capital gains on your assets, especially if they are not yielding interests by holding onto them. In a volatile market, trading actively allows one to take advantage of it, provided they do not let go at a loss.
Buying the dip has since evolved into a meme – it is not recommended to dive head on into any dip, but rather one with a promising outlook. As mentioned, perhaps a news release has caused a price shock, causing emotionally driven investors to pull out. But one should always consider facts and make an objective opinion rather than an emotional one – does the impact truly affect the technology, application and potential of the asset? Many times, it requires critical thinking and experience. Bold investors who take the plunge are often handsomely rewarded when the market is bullish. After all, fortune favours the brave. Of course, we recommend investors to do their own due diligence when buying the dip, and reconsider vigilantly their decisions when identifying a particular asset. After all, not all assets bounce back to their all-time high. Fluctuations and swings are inevitable, and it takes both diligence and courage to weather the storm and uncertain outlooks.
Strategy 3: Liquidity Pool Staking & Lending
Crypto lending or staking are ways investors can participate in DeFi crypto liquidity pools to grow their crypto assets as they offer consistent yields in the form of interest rates or token drops. The idea is to make your money work for you by investing in crypto assets which provides interest yield.
Crypto staking is the process of pledging money to a mining pool to help secure the blockchain network. By pledging money, they help to increase the chances of the node being selected to validate transactions. In return, investors are rewarded with tokens based on the amount they have committed. For example, UniSwap is a P2P exchange which rewards investors with ECR20 tokens when they provide liquidity to the platform. It results in a win-win situation, whereby UniSwap is able to facilitate transactions more efficiently, while investors earn rewards in the form of tokens via crypto staking.
Crypto lending is the process of lending stablecoins to liquidity pools, and earn interests based on the rate offered by the company. These companies utilize the liquidity pools to offer a platform which enables various kinds of specialized services, such as financial remittances. For example, ShuttleOne provides attractive interest rates of 10% APY to investors who lend stablecoins to their liquidity pools. Through crypto lending, investors have access to a fuss free, interest guaranteed form of investment.
There are several crypto projects on the market which offers high yield interest rates for investors who lend their crypto to their liquidity pools. For such platforms to disburse loans, it requires a sufficient liquidity pool to support its decentralized finance network. In a straightforward process, investors who lend crypto to their liquidity pool would receive high interests, earning passive income through their contribution. One such crypto project is ShuttleOne, a Singapore based company which provides financial services on collateralized assets. ShuttleOne serves government-related entities and e-commerce giants through its trusted blockchain network, and has since disbursed close to $3.5 Million of credit to businesses across Asia. For ShuttleOne to provide such services, they need to tap into liquidity pools via crypto loans by investors.
Through the ShuttleOne liquidity pool, investors earn loan interests in a simple and straightforward way when they lend crypto. Investors add stablecoins liquidity at ShuttleOne Network , and are rewarded with SZO tokens on top of the interest earned from the crypto loan. The ShuttleOne network accepts stablecoins in the form of lending DAI, USDC and USDT. With this additional step, investors leverage on the already available assets to grow their portfolio in DeFi crypto.
For more information on crypto lending or staking, you can read our article here.
Does the Perfect Strategy Exist?
There is no one best strategy towards portfolio growth, as each market situation requires careful consideration of the different outcomes to be expected. However, the best way to manage your crypto portfolio in a crypto bear market, would be to leverage the different strategies available for the best possible outcome.
Here is a step-by-step guide for you to start taking advantage of the crypto bear market:
1. Practice dollar cost averaging in cryptocurrency by investing periodically, even more so during a crypto bear market. This allows you to lower down your average entry price over time, and practice crypto diversification.
2. Secure profit when the position has reached your desired target price by trading the underlying cryptocurrency with stablecoins like USDC, USDT, DAI. This is also known as buying the dip, and selling rallies.
3. Put the profit in stablecoins (DAI / USDC / USDT) to work and lend crypto to DeFi crypto projects and earn interests. You can earn stable 10% interest rates with DeFi services like ShuttleOne through liquidity pool staking and lending.
4. Grow the profits through earned interests and accumulate your capital over time.
5. As crypto reaches your target price, utilize the liquidity in stablecoins to dollar cost average into other tokens
In summary, a crypto bear market is never fun for any investor – seeing all red and feeling frustrated? You are not alone. There are many hopefuls who wish that their crypto portfolio would rocket to the moon, but sadly, the harsh reality is that there is no perfect timing to invest. However, while market sentiments are out of our control, there are certain strategies investors can take on to navigate through the storm, and thrive in a crypto bear market.
An investor can take on crypto diversification and buy the dip when price has dropped, and sell to take profit when prices have achieved target price. Investors then proceed to lend and stake their profits in liquidity pools managed by companies like ShuttleOne in order to earn attractive interests yield. This allows investors to accumulate capital over time, and optimise their crypto portfolio. Furthermore, investors are able to rinse and repeat this cycle to generate more earnings in the next crypto bear market.