Bear markets are scary for any investor. The majority of traders are currently looking at portfolios that have lost almost 50% of their value compared to last month. While this will inherently influence fear in most investors, it’s important to take a step back to understand the situation so that investors are able to determine what the conditions for a reversal are.
Looming U.S. Interest Rate Hikes
The Federal Reserve is casting a shadow over the stock market and crypto market. These looming interest rate hikes have triggered a massive sell-off based on expectations that the central bank will increase interest rates in March. This matters greatly because a lot of investors use loans to further increase their purchasing power for greater gains. An increase in interest rates will significantly eat into an investor’s profits.
The massive initial sell-offs eventually caused an avalanche of sell-offs that subsequently influenced the crypto market, to the point that even Bitcoin, the most resilient Layer 1 crypto has significantly dropped in value.
Russian Crypto Ban
Another massive factor that has influenced the bear market is the Russian ban on all cryptocurrencies. This not only bans citizens from investing in cryptocurrency, but it also bans cryptocurrency exchanges from operating in the country.
This ban will naturally cause people to withdraw from crypto markets, as even with a VPN, it’s still difficult to trade crypto once your government cracks down on the technology. However, there is a glimmer of hope as the ban on cryptocurrency trading is not based on a consensus, and it may still be reversed in the near future.
Chinese Bitcoin Ban
Russia isn’t the only country to make a move against cryptocurrencies. While the Chinese government has tried to quell crypto trading for many years, it has yet to fully stamp out the demand for these digital assets.
What Should You Do During a Bear Market?
While it may be tempting for newcomers to enter the bear market, it’s important to understand the risks that come with these types of investments. There’s no telling how the bear market might play out, and it will be difficult to predict the price actions of coins, especially during this period of uncertainty. It’s important to manage risk properly moving forward. Here are some measures that you can adopt.
Dollar-cost averaging
Dollar-cost averaging is an investment model where an investor buys an asset in equal amounts over a prolonged period as opposed to making one big purchase in a single transaction. This allows the investor to consistently track the trajectory of an asset’s value and it also gives the investor an option to stop purchasing the asset should the asset take a downward spiral. Dollar-cost averaging allows investors to manage risk while still taking advantage of the market dip.
Portfolio Diversification
Each coin performs differently from one another. Spreading your investment across a multitude of coins can help you mitigate any loss. However, during a bear market, diversifying your portfolio entails that you should invest in at least one Layer 1 crypto like Bitcoin or Ethereum, along with other assets, such as Litecoin. Interested investors are encouraged to click here to learn more. This is because the price action of altcoins is heavily influenced by the price action of major cryptos such as Bitcoin and Ethereum.
Now that we have a better grasp of the situation, it’s easier to appraise the risks that new investors could be taking. Whether you decide to sit this one for the meantime or if you’ve done your due diligence and you’re committed to invest, always make sure that you buy your assets only from regulated money services businesses.
