Best Way to Make Money in a Crypto Bear Market

The common Wallstreet saying, “All fools make money in a bull market,” may sound harsh, unfortunately. But deep down, it depicts how pro investors define an extraordinary trader. How you handle markets during crypto winters is the ultimate measure of whether or not you’ve mastered trading. And we are not just talking about crypto, this cuts across the entire financial market. Many beginners and even seasoned traders run into a quagmire when the market starts plummeting. Some financial books advise investors to buy low and sell high, but what exactly is low or high? Are there proven strategies for making money in crypto bear markets, and which cryptocurrencies should one dispose or hold? That’s what this article is all about and much more. So, stick with us if you want to transform your trading once and for all.

Crypto Bear Market
Crypto Bear Market

What Is a Crypto Bear Market?

Bears are famous for attacking their prey with their head held low and striking with their claws swiping downwards. And that’s where downtrends get the name “bear.” Generally, bearish trends are defined as prolonged price declines. A simple market dip doesn’t fall in this category. Statisticians say a cryptocurrency is bearish when it’s down by not less than 20% from the recent high. It doesn’t end there. The price movement must be substantiated by widespread investor negative sentiment or other fundamental factors. In terms of timeframe, we can typically classify any digital coin whose price has declined for two months or more as a bear. Keep in mind that prices don’t move in a straight line, and it’s common to find downward market movements contrasting with short-term bull trends. Bear markets can be short-term, lasting for a few months, or long-term, running for several years. The main characteristics of a downtrend are:

  • Price has plummeting by more than 20%
  • Steady decline for at least two months
  • Negative fundamentals and investors’ beliefs

History has shown that bear markets happen in four main phases.

  • Phase One: The first phase of a bear market is a solid bullish trend with declining momentum. Prices reach peak points and stagnate in these areas for a while. After that, they may go into a range before significant investors, and early buyers start cashing out gradually. Some casual traders may jump out of their positions too.
  • Phase Two: The second stage of a bearish market is commonly referred to as capitulation. Investor sentiment shifts as the media and analysts predict a further price drop. This sends the herd into a panic sell, causing a sharp price decline. At this point, all market indicators and economic calendars turn negative.
  • Phase 3: After a steady plunge, the price takes a break, and we start to see pullbacks towards the bullish side. Speculators and scalpers looking to take advantage of short price movements jump into the market.
  • Phase 4: Bears officially get into the market by offloading their assets in bulk. With excess supply available, prices continue to fall but slowly. The fourth leg of a bearish market might be characterized by several corrections. This is mainly caused by big investors looking for early entries in anticipation of a new phase of bullishness. Eventually, the price continues shooting down.

Make Money in a Bear Market: Best Ways to Profit

Bear markets can be hard to predict and trade, but that doesn’t mean they are not profitable. They are a fact of life, so a trader must learn to navigate them. You can’t stay out of the market until a bear season ends so that you can get back to trading because no one knows how long bears will dominate any market. Let’s look at some top ways of making money in a bear market.

Dollar Cost Averaging

Dollar-cost averaging is one of the most successful crypto bear market strategies that have been tried and tested. It’s a practical case of the saying, “Do not put all your eggs into one basket.” Professional traders also prefer this method as it helps them stay profitable without exposing a massive part of their portfolio to risks. So how does it work? To use this technique, divide your funds into little portions and trade the small portfolios at intervals. For example, a trader with a $10,000 book could split it into 20 parts of $500 and trade with these smaller amounts to remain safe. While this strategy significantly reduces your chances of raking in huge profits, it ensures your account is protected from insane losses and still allows you to earn a small return. To further reduce the chances of losing, you can buy dips and target small returns per investment.

Short Selling

Short selling is an advanced trading strategy where one borrows an asset whose price has been anticipated to drop from a broker. This trader then sells it in the open market, expecting to buy it later at a lower price. Short selling a crypto bear market and holding it long enough can see you cash in abnormally high profits when you purchase the asset after a prolonged price downfall. Crypto short selling is simply the opposite of buying an asset, and it’s advantageous because you can make money even when the price is falling. You return the borrowed asset to your broker at the cost you borrowed, plus a commission or spread, and keep all the profits to yourself. Traders can short sell by engaging in futures trading or margin trading.

Crypto Staking

Just like people lock their funds in interest-earning bank accounts, you can make money staking your digital coins during a crypto bear market. It’s one of the best ways of raking in passive income. Keep in mind that staking only works for proof-of-stake (POS) blockchains like Ethereum, which recently switched fully to POS after completing the Merge. The best part about this investment is that you don’t need any trading expertise. Once your funds are locked in a POS platform, they automatically start earning interest and growing. The money you make on your staked account comes from validating other people’s transactions in the POS consensus system. Investors who stake significant funds get priority in validating payments and hence earn more. You eliminate the chances of panic selling as your assets are securely locked on a blockchain for a set period. When the bullish market resumes, you have a bigger portfolio to trade.

Yield Farming and Liquidy Mining

Yield farming is similar to staking, as it involves locking your money on the platform to earn interest. The difference is that your money is not used to validate transactions in yield farming, instead goes out as loans to other users and comes back with interest. The return on investment is influenced by the amount you lend and the popularity of the token. Cryptocurrencies with high demand attract good returns on yield farming. You earn your reward in the form of the platform’s native token and can choose to keep it or liquidate it in any way you deem fit. This is the same concept as fiat saving accounts. What draws the line is that fiat banks keep most of the profit and pay an insignificant amount to the saving account. In yield farming and liquidity mining, one takes home all the gain from lending. Yield farming is possible using most DeFi wallets.

 

Scalp Trading with Grid Bots

Scalp trading is a form of investing where one pumps in significantly huge funds into the market and exits with the slightest profit possible. Scalpers hold their trades for the shortest time possible, typically just a few minutes. While the technique poses risks of enormous losses, it can significantly grow one’s portfolio if applied correctly. Grid trading, on the other hand, involves predetermining entry prices and opening multiple orders at once, then closing them once you achieve your objective. Grid bots make it easier for you to use this strategy while scalping, as they can speedily compute the entry parameters and implement them according to your instructions. If used correctly, grid scalping makes insane profits even when prices are nosediving.

Research and Learn

If you have learned something new by now, you agree that research is the only way to stay ahead while trading crypto bear markets. Nobody knows when a crypto winter will start or end, or even the next price pullback. But if you invest time in expanding your skills and refining your strategy, chances are you will be among the profitable traders during bear markets. Also, remember that market behavior can change abruptly, and it’s only the prepared traders that don’t get caught off-guard. Understanding fundamentals and following top analysts will also help you stay updated with market sentiments.

Diversify your Portfolio

It doesn’t help to lock all your funds in one crypto during a bear market. If it crashes, all your money gets nuked. The best way to reduce risks and potentially remain profitable is to diversify your funds into different assets. Spreading your cash reduces your exposure to bear market losses. This is because even if the general market trend is bearish, some digital coins will continue rising in value. Of course, you should do your homework well in selecting alternative virtual currencies that have exhibited good behavior in the past and are stable.

Investing During a Bear Market: Potential Rewards

Bear markets can be a blessing in disguise for those who grab the opportunities they offer. Bearing that crypto winters are not permanent, intelligent investors use this period to buy digital currencies at low prices. Take Bitcoin, for example, which is trading at about $20,000 as of writing this, yet it has recorded highs of over $65,000 in the past. With analysts predicting that the coin will soon hit the $100,000 mark, it would be wise to start stacking your money in BTC and other bearish coins like ETH. Every market correction during a crypto bear market also gives you an opportunity to profit. You can day trade or scalp to make the most from short-term price movements. Of course, it’s not going to be a walk in the park, but you will come out better than you went in. You will be forced to constantly research and study the market to find the best entry and exit prices and protect your money. Eventually, you become a better trader with thick skin, experience, and unmatched skills.

Risks of Investing in a Bear Market?

While we believe that crypto bear markets can be a cash cow, one shouldn’t be ignorant of the challenges. All the risks of crypto winter, whether inflation, time horizon risk, or any other, are all related to the loss of funds. Therefore, losing your money is the most significant risk of holding assets in a declining market. Apart from significant coins like Bitcoin, less established tokens stand a chance of completely crashing in a bear market. One might argue that this is rare, and we are not objecting, but did you not witness Terra’s LUNA token plunge by a record 96% in just 24 hours? In fact, it ended up at $0, writing off all investor money. This might not always be the case, but since no one knows how long bear markets will last, investors who bought crypto assets at peak prices tend to wallow in the red zone for a long time when crypto values start printing losses. Most of them end up panic selling and cashing out in huge losses.

Key Factors to Consider When Investing in Cryptocurrencies During a Bear Market

Use Case:

The crypto sector is oversubscribed by flashy projects with big promises, yet only a handful of them see the light. The easiest way to lose funds is investing in gimmicky protocols with no real-world use case. Most of them will likely suffer irreparable losses in a bear market, especially if their hype has died off.

Revenue: 

Developing and sustaining a blockchain project takes time and money, meaning only well-funded protocols will likely survive in the long term. Identifying where a project’s money comes from and whether or not it’s profitable is key in predicting the future of an asset. Of course, you only want to put money into sustainable crypto investments. High revenue projects with limited activity may be undervalued, hence best for investment.

Cash Reserves:

DeFi has created multiple crypto investment vehicles beyond the major coins like Bitcoin. As mentioned, maintaining any crypto protocol is an expensive affair. A proper DeFi project should have reserves in different reliable assets and stablecoins. You’ll be surprised to realize that some of these protocols are however operating on low liquidity and only hoping to raise funds by attracting enough users. Consider important parameters like DeFi Total Locked Funds if you intend to put your funds in any DeFi token during a crypto bear market.

Performance and implementation:

The old wall-street saying, “Past performance is not an indication of the future,” doesn’t always hold water while investing. For example, a project that’s not been able to follow its own roadmap and meet import deadlines in the past may continue with such a trend even in the future. Using sites like GitHub and CryptoMiso, investors can track the performance of different blockchain projects to make sound investment decisions during periods of falling prices.

Cryptos to Invest in During a Crypto Bear Market

While on one side, crypto bear markets wipe out tons of profits from the market, they give savvy investors a chance to buy high-valued digital assets at a discount. That said, not all virtual assets survive bear seasons. That’s why you must exercise caution if you want to make money in a crypto bear market. Here are the top five cryptos to consider investing in:

Bitcoin dappGambl Bitcoin (BTC):

Apart from being the crypto forefather, Bitcoin is the barometer of the digital currencies market. It has a market cap of about $385 billion, down from over $890 billion a year ago. It’s priced at $19,300 as of writing this, after a steady fall in price from its last peak of $64,400 in November 2021. Bitcoin is still the most valued crypto and an investors’ safe haven during this cryptocurrency bear market. All other digital currencies seem to follow BTC, so it’s much better to put your money in the asset, knowing it’s among the market indicators.

Ethereum v dappGambl Ethereum (ETH):

Ethereum, the second oldest digital coin has exhibited resilience to become the best real-world utility coin. It stands second in market cap after Bitcoin, at a staggering $180 billion, and currently sells for about $1560. The recent migration to POS after the Ethereum Merge sets up the coin for a major explosion considering that transactions will no longer cost an arm and a leg. Besides, the network can now process as many as 100,000 transactions from the former 30 payments per second. So don’t let the ETH train leave if you missed investing in BTC when it was going for less than $5,000.

USDT dappGambl Tether (USDT):

Investors who don’t have time to analyze the market during this cryptocurrency bear market may want to put their money in stablecoins until the recovery phase starts. A stablecoin is a digital currency whose value is derived from a larger asset, such as a strong cryptocurrency like BTC, a commodity like gold, or a fiat currency like USD. USDT is the oldest stable coin and has seen the most bear markets in stablecoins. It’s pegged on the dollar and controlled by USD reserves to keep at par with the super-power currency at all times. Another reliable stablecoin is USDC, which derives its value from Ethereum.

Binance Coin dappGambl Binance Coin (BNB):

Binance, the world’s largest crypto exchange, launched Binance Coin on the Ethereum network in 2017 before later transferring it to its own Binance blockchain. BNB gained at least 271,000% in value between its launch date and September 2022. Binance exchange continues to popularize this crypto using different methods, including influencers like football star Christiano Ronaldo and popular TikTokker Khaby Lame. Having recorded a previous high of over $600, you can be sure your investment won’t go unrewarded.

cardano Cardano ADA:

Our fifth coin on the list of cryptocurrencies to buy if you want to make money in a crypto bear market is Cardano. It’s Ethereum’s major competitor in smart contracts and decentralized applications implementation. The virtual currency has an organized team of developers who have effectively executed every milestone on their roadmap. Cardano is upgrading to the Basho phase, which promises to increase scalability. ADA seems to be just getting started despite being already popular in the crypto community. If you are looking for a crypto version of penny stocks, you have it. ADA is trading at $0.46 as of writing this.

 

Strategies to Minimize Losses During a Crypto Bear Market

No Panic Selling:

Emotions, be it greed during bullish markets or panic during the red seasons, are an adversary in trading. It might not be easy for everyone to manage emotions when crypto assets display double-digit losses. You might feel desperate to reduce losses by selling assets without making any analysis. Unfortunately, doing so will only leave you losing money, and you may soon start regretting it when prices recover. Unless you put funds in an asset that’s crushing, it’s possible to ride a crypto bear market and come out strongly.

Stable Coin Staking:

If you can’t stand watching your investment being affected by declining prices, stablecoin staking is the best method to hold digital assets. As mentioned, USDT or USDC offer reliable staking options. You may consider other stablecoin alternatives, but we advise that you take precautions with algo stablecoins that don’t have any known backing. Luna was one of them and it nuked all investor’s funds at the beginning of the 2022 crypto winter when it crashed to $0 within just a few days. Consider using top crypto wallets like Trust Wallet.

Hedging: 

Hedging is a risk management strategy commonly used by professionals to offset losses. It involves taking a position opposite to an already opened losing trade. You can hedge in the same asset or a different one with a stronger opposite movement. Hedging is meant to mitigate losses but can sometimes be counterproductive and limit one’s profits. Like any other strategy, ensure you understand how to hedge your positions before engaging in this technique.

Assess the Market Continuously:

The crypto market can be subject to abrupt changes during a bear market. While holding your portfolio, you need to carry out fundamental and technical analysis from time to time for situational awareness. Remember, one can cash out part of a portfolio and invest in another crypto or stay out of the market if their analysis shows that the asset in question may not recover. On the other hand, being aware of what is happening in the market could help you remain calm even in an insane bear period if your analysis predicts a bullish season in the near future.

Think long-term: 

As mentioned, bear markets don’t last forever. So instead of rushing to sell out your positions in losses, you should consider holding positions long-term. Prices can drop by 15% overnight; the next day, they are up by 50%. Taking a case study of BTC, its price rose from $13 to $900 between January and November 2013 before dropping by 50% within less than two weeks. Many thought that the end of it. Price stagnated until 2017 when it quickly shot to $6,000 and later to $17,000. Prices plummeted again in 2018, this time up to $3200 from a high of $19,000. During the first quarter of 2019, BTC gained value to $7,200 and later registered an over 300% gain in 2020, hitting new highs of $29.000. This is not unique to Bitcoin but is the norm in the digital coin market. Volatility is one of crypto’s trademark features. Holding your crypto assets long-term during a bear market gives you a chance to come out of losses and potentially accrue huge profits in the future.

Our Top 5 Tips for Profiting During a Bear Market

Don't panic: Take a deep breath and hold your trades. Every bear market has an end.
Dollar-cost averaging: Make recurrent buys with short-term targets to cushion your portfolio from huge losses.
Diversify: Keep your portfolio spread out among different virtual currencies. Some currencies may make you enough profits to recover from losses.
Stay with the trend: Consider short selling to make money from the falling prices and potentially offset any losses you may have made at the beginning of the downtrend.
Crypto staking: Lock your funds in staking pools and liquidity yield farming to earn uninterrupted interest even when the bears are in control of the crypto market.

Final Verdict - Bear Markets can be rewarding.

No investment comes 100% risk-free. As a crypto investor, you’re bound to occasionally face risky situations like bear markets. However, there is no reason to worry if you have read this article to the end. If applied appropriately, the strategies highlighted on this page will mitigate your losses and help you make money in a crypto bear market. Remember, you must work to learn, research, and improve your trading skills to remain ahead of the game. Cryptocurrency trading can potentially wipe away all your funds without proper risk management. Therefore, we don’t advise you to invest anything beyond your risk capital.

FAQs

How long will the bear market last?

No one can predict how long a bear market will last. Depending on what’s causing it, a downtrend can be short-term, three to six months, or could span over a year. However, history shows that uptrends tend to last longer than downtrends.

What are the best ways to store cryptocurrencies during a bear market?

There are many ways to protect your cryptocurrency. If you don’t want to invest or stake your coins in DeFi pools, you can store them in hardware wallets like the Nano and Ledger crypto wallets. You may also consider software non-custodial wallets if you don’t have a budget for hardware storage devices.

What are the best ways to trade cryptocurrencies during a bear market?

One of the best ways to trade virtual currencies during a crypto downtrend is using dollar cost averaging. You may also consider hedging, scalping, and short selling.

What expert advice is available for investing in cryptocurrencies during a bear market?

The best advice for investing in digital coins assets during crypto bear markets is, “Don’t panic.” Control your emotions to remain in control of your decision and avoid making irrational decisions as that could further cause you unnecessary losses.

Eugene Abungana
Written by Eugene Abungana verified symbol Investment Analyst, Financial Analyst, and Institutional Trader
114 Articles

Eugene is an investment analyst, MQL developer, financial trader and an expert in blockchain technology. He is a graduate in economics and holds additional studies in sustainable retirement investments. In addition, he has a background in literary journalism and experience in private fund management, institutional trading, and online broker setup. Eugene is a specialist at breaking down complex finance and investment topics into a simple read for everyone.

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Reviewed and Fact Checked by Kevin O'Brien , Web3 & DeFi Writer