5 Crypto Investing Strategies for a Market Downturn

While cryptocurrency stocks are falling what tactics can you use? We spoke with Josh Gilbert from eToro for his take on investing in crypto during a bear market.

In this current market downturn, it’s likely you’ve seen commentary declaring that we are in the midst of a ‘bear market’, a term commonly used to describe an extended period of falling share or asset prices.

During these periods, a proportionate decline can often be observed in investors’ appetite for risk. Finding a silver lining or positive strategies to successfully navigate these periods can be difficult – and it’s common to see investors panic selling to recoup losses before prices fall lower.

But while investors might see a bull market as the key period to reap market rewards, a bear market can hold potential for prepared investors in the world of cryptocurrency. Here are a few strategies one can utilise to help navigate their way through a challenging period.

Note: The below is not financial advice but an outline of common strategies observed within the market. It is important that investors do their own research and take the time to determine what aligns with their financial situation and goals.

Consider ‘Buying The Dip’

Purchasing crypto assets while the prices are low can potentially lead to a profit if the market begins to trend upwards. It’s important to remember that just because you’ve bought at the lowest point of the market thus far, there is still a risk the prices may continue to drop for a while longer. Many advocates of this strategy emphasise the importance of not investing any more than you’re willing to lose in the event value continues to decline.

Related article: What is Buying the Dip? 

Learn about dollar-cost averaging

This is a simple and longstanding strategy that investors see particular value in during a period when they wish to be more frugal than usual.

By foregoing lump sum investments and opting instead for routine, incremental investments, investors can wind up holding the same volume of assets that they would have held with a lump sum investment – but for a lower cost per asset.

This is a common strategy used by investors that wish to reduce the influence of volatility over their portfolio, reducing their overall risk exposure.

Keep in mind that like all investment strategies, there is not a guaranteed positive outcome, so conduct your own research prior to investing.

Related articles: What is Dollar Cost averaging and how does it work?

Evaluate the opportunity to diversify your portfolio

Buying cryptocurrency when the price is down and the market is bearish is a common tactic people often use to provide your portfolio with more diversity. This is especially useful for those who are predominantly invested in an asset that’s experienced a rapid reduction in value.

Diversifying your portfolio is one approach investors can take during a bear market period, so long as they are aware of the risks and take a relatively moderate approach.

Related article: How to buy Cryptocurrency in Australia

Identify ‘Panic Selling’

When an asset you’re holding begins to decline rapidly in value, it’s a natural reaction to want to sell fast to reduce any potential losses you may incur. However, many investors argue this is counterintuitive to reducing overall losses, often resulting in undesirable outcomes for individuals and hurting market conditions overall.

Some investors suggest selling assets while their value is still relatively high and then purchasing at a lower price in the midst of the bear market. As you cannot accurately time the bottom of the market, this strategy carries significant risks. The asset could resume growth unexpectedly, resulting in an overall loss.

Avoiding panic selling does not mean investors should never sell when an asset’s value is dropping. Take the time to evaluate whether the reduction in value is due to long-term implications or if it’s the product of collective panic amongst asset holders.

Look into staking your crypto

If you aren’t planning on moving or selling your crypto anytime soon, some investors may consider staking it to gain passive income from your assets. The staking benefits can depend on the asset, investment or platform but generally speaking, locking your crypto into a proof-of-stake blockchain might enable you to emerge from the bear market with a profit.

For example, some cryptocurrency platform’s allow investors to have their Ethereum, Cardano or Tron holdings staked on their behalf. The staked cryptoassets remain the property of the investors; in turn, the investors entrust the platform to execute the entire staking procedure for them, securely and effectively. Rewards and yields vary dependant on market conditions, so ensure you have reviewed the most recent rates and conditions prior to making a commitment.

Related article: What is crypto staking?

Create a learning opportunity

Bear markets can be a good time to build a greater understanding of technical indicators and read through reports of prior market downturns in order to learn how to identify the potential signs of market recovery.

Look into factors such as whether Bitcoin dominance is influencing the market’s behaviour, and which cryptoassets have performed well during similar market downturns.

By expanding your knowledge of market trends and how the historic performance of specific cryptoassets can indicated certain conditions, you can build a bespoke strategy that suits your investment objectives and which you can continue to tweak and adapt in the future.

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