During the last year, markets have experienced both huge gains and significant drops. Since the market downturn began, there has been a great deal of fear and uncertainty. Nevertheless, for long-term investors who have the patience to weather the storm, low prices can provide a great opportunity to invest in cryptocurrencies even more. The following six tips will help you invest in a bear market:
- Use Dollar-Cost Averaging (DCA)
In a bear market, investors are tempted to sell their holdings and wait out the storm. But it’s important to remember that the crypto market is still in its infancy—and there are plenty of reasons to invest now.
The “Dollar Cost Averaging” (DCA) method is a Nobel prize winning investment strategy that aims to reduce the impact of volatility on investments over time.
The principle is based on the investment of a well-defined amount at a fixed frequency (every week, several times a month, every month, etc.). This completely disregards the price of the asset purchased and allows you to avoid taking the full force of unforeseen market fluctuations and to smooth your investment at the most attractive average price possible.
The amount invested will depend on the capital of the investor. By investing continuously in an asset over time, the investor benefits as much from bullish periods as from bearish periods. In this way, risk taking and the impact of volatility are reduced over time.
- Diversify your investments
Diversification is a key part of investing. You'll want to spread your money across different cryptocurrencies and projects.
Don't put all your eggs in one basket. You never know which cryptocurrency or project will be the next big thing, so it's important to diversify across multiple currencies and projects.
The best way to diversify is by investing in multiple cryptocurrencies and projects. We suggest a minimum of 5 different currencies or projects, but you can go as high as 20% of your portfolio if you'd like. Make sure each project has a different use case so that there's no overlap between them.
- Know Your Risk Tolerance
The first step to investing in a bear market is knowing your risk tolerance. Simply put, risk tolerance refers to your willingness to accept financial losses in order to make gains on an investment.
If you have a high risk tolerance, then you are more likely to invest in volatile assets such as cryptocurrencies. For example, if you bought Bitcoin at its peak price of $20K and invested $10K into it and it drops by 50%, then this would cause you a significant financial loss. However, because of your high risk tolerance, you may still see value in the asset and decide not to sell at this point even though there is still a large loss on paper due to selling all of your coins for only half their previous value (for example).
On the other hand if someone with lower risk tolerance buys into cryptocurrency when its price is skyrocketing upwards (like BTC did from ~$2000 back in December 2017), they might panic sell their holdings as soon as prices start dropping – even though no actual value has been lost but just paper profits (paper profits = when someone thinks their coins are worth more than what they actually paid for them).
- Be intentional about monitoring your portfolio
When investing in cryptocurrencies, be intentional about monitoring your portfolio. You shouldn't keep checking your account every few minutes because of a tweet or recent article you read, especially during a bear market. Stress and urgency will only lead you to make harsh decisions like panic selling.
Conclusion
Investing in cryptocurrencies can be exciting, but it's also a lot of work. It requires you to constantly monitor your portfolio, keep an eye on the markets, and have a plan for when things go wrong. Remember that this is still very much a new industry and there are no guarantees, so make sure you're prepared before getting started!
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