Leo Wong Chin Wai
Tips on Getting Through a Crypto Bear Market.
Updated: Aug 23, 2022
It has been bearish for crypto since the fall of BTC from 70k and all “Plan B” or “Supercycle” controversies have vanished. The whole industry is currently having a difficult time and it's a tough place to be. There’s a meltdown in both crypto, NFT, and stock markets that make people worry that this bear market will last longer than they expect. Holding onto assets as they drop is a difficult thing to endure and it takes a lot of character to get through this market.
This article provides some advice on how to avoid being squeezed out of the gains and get through the bear instead of screaming in fear.
Why is Crypto Dropping?!
Crypto market as a whole is dropping, a few culprits being the SEC hearings, the implosion of UST/ Luna ecosystem, China's ruthless banning of crypto, the Russo-Ukrainian War, Fed monetary policy, and regulation on combating high inflation and stabilizing markets. At the end of the day, once again showing both markets and people are not predictable nor rational, which is only a reflection of the human emotion and minds of all unstable actors in the open market. We are, in fact, still holding the character of our tribal ancestors who take preference performing similarly to each other to get accepted, recognized, and even survive in a community. Such biological characteristics also in turn lead to many collective desires, dreams, and even fears, which directly cause a huge impact on the market.
When a market turns red, the fear starts to accumulate and people wish to see how others are reacting so they can do the same. People heard news saying VCs and big hedge funds, with a larger share, are losing money and selling to prevent further losses. While this is happening, the feeling of panic and anxiety overtakes most participants. They attempt to sell before the price drops significantly, thus leading to a massive domino effect and causing a more rapid and severe downfall. At this point, it is hard for the market to recover as every single move up would be seen as an opportunity to take profits or cut losses.
As John Maynard Keynes once said ‘The market can stay irrational longer than you can stay solvent.' Such bear sentiment would still occur until no one discusses the sector and the price is too discounted which reaches hard for a further turndown, then the reversal pattern will gradually start. Accumulation will only happen when there is a drastic shift from current despair and fear into a mix of hope and doubt. We are still nowhere close to that (you may disagree on that). Anyhow, we have to get prepared for erratic weather, so we get a raincoat for the storms and some firewood to warm ourselves during the winter.
Why is the Bear Market actually both a Blight and also a Blessing?
Bear markets are when many people get squeezed out of their positions, especially if they are un-hedged or over-leveraged. The terrible feelings after loss and the financial pressure all strike you at the same time and it’s even more unbearable than being hit in the gut. You cannot sleep nor have any appetite to eat, and that’s not the worst.
Social pressure is severe, and the friends and relatives that treat you like a genius and seek your financial advice during bull markets are now blaming you for their loss, which their loss has no causation from you. That’s their own decision in any kind of investment, and they know it. Nonetheless, they will still keep bringing up such topics whenever they meet you and this forms a serious invisible pressure on you. You may not even want to attend any family gathering.
Besides, bear markets will directly reduce the opportunities for everyone to make money. There are unlimited chances if a person has a track record during the bull run. He or she could earn from marketing, advising, consulting, or other kinds of contract and salary jobs. This circumstance changed fast and ruthlessly when the bear hit. VCs started slowing down in deploying to projects as LP holding the funds, startups and projects got a harder chance to raise money, in hiring less or even laying off more staff from the development team so as to maintain cash flow. Ironically, companies, which suffer from market crashes or lack of new funds would suddenly reckon the talents as irrelevant and start talking about budgets. Coinbase also took the negative spotlight recently as they rescinded offers from several candidates, leaving them in frustration. These are just part of the frsutrating stories.
However, bear markets are not merely gloom-ridden and pessimistic, and several highlights should not be ignored. The first thing that needs to be mentioned is people will be more cautious in doing investments and VCs will focus on conducting due diligence regarding projects and startups. There are many malinvestments during bull markets which indirectly lead to scammy projects to be successfully raised and create massive rug pulls. Such frauds will not only lead to a serious loss for retail investors (even VCs) but also more importantly deteriorate the reputation of crypto and Web 3, which makes the traditional finance people more reluctant to accept this industry. Bear markets will help reveal ponzi scams and loopholes in the space which are sugar-coated with all kinds of lies, overpromise, and exaggeration. Such a correction in the market will let money flow from bad actors to better companies and institutions. With careful research and investment, resources could be re-allocated to useful endeavors and projects that have the potential to accomplish what they are promising. There will also in turn be less duplication of similar projects which only aim for taking quick cash and investors are dumping their tokens or flipping NFTs once launched. Investors also stop FOMOing and start to do more research before investing (DYOR). In this connection, bear markets reveal what is important, and only those truly useful and productive survive, which is in fact very promising.
Besides, bear markets are good as they teach people to stay humble and never pride in their temporary success due to bull markets. Short-term victories and quick flow of cash could be easily found in bull runs, yet many forgot that they may purely come from luck and such a thing won’t work in bear markets, especially if you are relying on that. The market will be more fluctuating and unexpected during bears and what worked previously could not be the case anymore just for a short period. What makes a person successful in the long term is his/her character, personality, determination, and conviction. How many times have you heard someone new to crypto saying “I would be successful if I invested in Bitcoin back in 2010!”. Lots of people holding a hostile and jealous attitude toward the early adopters of crypto and complain about how “lucky” there are. However, that's not the case. Long-term holders do not rely on luck nor get lucky, instead, they have the conviction that others do not possess. Many people bought bitcoin in 2020 but also a lot of people sold it because they treat it as a gamble, plaything, or a trade thing. They were not convinced by the blockchain technologies nor willing to trust such things could make a revolutionary impact on the world economy, thus selling whenever there are profits or giving up when bear markets hit in the past. It is not easy for any person to hold for a long period and it takes conviction to continue holding. An investor also requires proper portfolio management and discipline in their daily lives in order not to be squeezed out of their positions. Long-term success in crypto (also in any kind of market) needs to be diligent in sticking to their plans and map out the future carefully, in which that person will face some difficult choices and he/she cannot be a spendthrift. It is always easier to say than do and that is something all of us need to keep on in mind.
So What are the Tips?
Be Patient in Planting Seed and Stop Gambling
Admit that most people may say they invest in projects or companies due to societal values or believe in something that would make a huge impact on their future lives, yet, most of them are testing their luck at roulette. They are not supporting the companies or projects out of goodness or strong vision, nor wishing to contribute to the overall growth of the economy. Investors would love to see the economy booming, but this does not change the fact that they put money into the market merely because they want to get more money out than they put in. The desire to make money without really working makes gambling more enjoyable and addictive. Some may even forget the zero-sum game rule in the market, which is that whenever you win someone will lose and vice versa. It is only when you can get out of the illusion that trading is a game of chance, that a person can start making better decisions and planning for a longer-term. Constantly reminding yourself that you are wading into a storm of chaos will remind you to stay cautious and bring an umbrella or raincoat into the storm.
Bear markets will always be a mind game of patience, the more you rush to get your profit or capital back, the more reckless you will go in trading, also the lack of patience will make you miss a great deal of amazing things happening in the foreseeable future. The key is you keep planting the seed and set your expectations on a longer horizon. When you look at the bigger picture, crypto (bitcoin) has proven to remain resilient throughout global uncertainty and will go through several major ups and downs, like the one we are currently experiencing. During the previous bear runs, crypto and stock markets finally got to know each other, and they shared the ebbs and flows. It is a very exciting moment for all parties to hang tight for significant advancements to come. How people think it is like to HODL has a huge gap from what is actually like to HODL. We need to keep planning ahead (which is never easy) and remember there is always a silver lining in every situation, no matter how bad you think it was at that stage.
(Bitcoin 10+ years chart - Zoom out and Set a longer vision!)
Stop Spending Numerous Screen Time in Finding the Best Alpha
You may encounter many analysts or CT spamming threads daily and proclaiming “this is the time”, “we have hit the bottom”, or showing their technical analytic graphs and drawing lines to tell the mass public to follow their trade. You wish to get some insight from them to reconfirm some of your beliefs about future trends, yet the sad thing is, the messier your mind will go and it will become harder to distinguish between truth and unfounded claims. No one’s opinions are 100% correct and there are numerous types of analysis that all have flaws. CTs are also apes, but some of them want to lead other apes to follow their move as collective action to flavor their own goods. Provided their comments are wrong, they would not have any consequence on that and said “You should do your own research, I am not giving financial advice.” Thus, it is very dangerous to blindly follow advice without critical thinking, especially in such a super volatile stage of the market.
Instead of frequently updating CT’s tweets and watching the news constantly, it is suggested to study the math behind games of chance, and look at probability, technical analysis, investment theory, and statistics. This would build up your knowledge, insight, better portfolio management, and most importantly the character for you to encounter with upcoming events in the space. Such a way of enhancement would also be helpful to avoid repeating the mistakes of history and build on the shoulders of someone else. YOU can make your Alpha.
Perform Dollar-cost averaging (DCA) Strategy
Many investors make the mistake of trying to time the market, but this would always lead to futile attempts for even investment professionals, let alone the majority. Dollar-cost averaging (DCA) investment strategy can effectively eliminate the need to measure the “Top” or “bottom” in the market.
Regarding the DCA strategy, an investor divides up the total amount of his/her investment size across periodic purchases of the targeted tokens and is well-positioned for any unexpected market downturn without investing too much capital at risk of loss. Such a method could also help reduce the impacts caused by volatility on the overall purchase. This is useful in bear markets as it reduces the pressure from deciding the exact “perfect” entry point or buying the lowest dip (which is impossible). This would in turn also prevent the investors from monitoring the market every 5 minutes or panicking daily will they miss the ‘chance”, which would severely harm their mental health and relationship with their close ones. With the DCA strategy, they can have a very sophisticated plan on how much their average investment size and when will be the entry time, regardless of the price. This requires discipline and, once again, conviction, but also the best when you reckon it is a golden moment to buy in while worrying about the future events which lead to a further fall in price, providing the edge that you need to meet your goals.
Bear markets are a necessary part of any economy, especially when there are increasing amounts of scams, loopholes, and malinvestments as there have also been in the past few years. There is no panacea for bear markets nor wizards using magic spells to pump up the price of the market, yet we will see more foundations being built or rebuilt, and many creative talents and decent builders are being born during this challenging time. To put that another way, a bear market is a moment of the vanishing of precursory legitimacy and trends and real legitimacy is born. The world needs a realignment based on real utilities, not just promises. As we move toward an uncertain future, all of us must stay sober and focus on building the characters and knowledge which lead us to better prepare for the next bull market. Living in a Globin Town is never easy, let's get through this bear market and come out the other side intact, stay safe.