5 Strategies Obligatory Investors in Bear Markets

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JAKARTA - A bear market is an inevitable phase of price decline in the crypto market cycle. For many investors, this condition triggers panic and decisions that can be detrimental. In fact, experienced investors see it as an opportunity. Here are 5 tips for strategies that you must do to survive in the midst of a bear market from the Pintu Academy team!

What is a Bear Market?

Quoted from Pintu Academy, the PINTU application education platform, a bear market is a market condition when asset prices fall significantly and last for a relatively long period. Different from short-term corrections, bear markets usually last for months to more than a year and are accompanied by widespread negative sentiment.

In general, a bear market usually occurs after an asset has recorded an ATH, which is then followed by a market correction because it has experienced a long rally. The selling pressure is then strengthened by other factors such as macroeconomic conditions, monetary policy, or geopolitical tensions.

The Bear Market Cycle of Crypto Assets

Historically, the crypto market is known to have a 4-year cycle that is closely related to the occurrence of bull and bear markets. This cycle is centered on the bitcoin halving event, reducing the reward received by Bitcoin miners by 50 percent every four years.

ATHs tend to form about 2 to 3 years after Bitcoin reaches the bottom of the previous cycle. In this range, the market usually experiences an accumulation phase or sideways movement that is often used by long-term investors to accumulate.

5 Strategies Required in Bear Markets

The following are a number of relevant strategies to be applied in facing a bear market according to the Pintu Academy team:

1. Patience in Determining Assets and Target Purchase Price

When prices fall by more than 20 percent, most investors who have just entered crypto immediately experience panic and sell all their assets. Investors who have gone through several bear market phases often have a different perspective. They see bear markets as phases where undervalued assets can be accumulated.

Things to Do:

● Create a watchlist of assets that you believe are fundamental. Do this when the market is experiencing a decline or in a calm phase. See how the price movement responds to the decline in Bitcoin prices. Assets that are able to survive relatively better than Bitcoin when the market weakens are usually attractive accumulation candidates.

● Set a target buying price based on the analysis you have made. One approach is to identify historical support areas as a zone for buying assets, so that the buying decision is planned before the price actually gets there.

2. Capital Protection

The main priority in a bear market is to keep capital from being eroded and make decisions that are driven by a bias that considers a decrease in assets to be the lowest price point so as to allocate all of its capital in 1 transaction.

The strategy that has proven most effective for long-term investors in this condition is Dollar-Cost Averaging or DCA, buying assets regularly in fixed amounts, regardless of the current market price.

DCA vs. Buy-and-Hold Simulation in the 2022 Bear Market:

Suppose an investor has Rp12 million in capital at the beginning of 2022 and wants to allocate it to Bitcoin.

● Investor A (All In)

Investing the entire Rp12 million at once when the BTC price was around $47,000. When prices fell significantly until the end of 2022, the value of his portfolio shrank to around Rp3.9 million, or a decline of around 67 percent.

● Investor B (DCA)

Allocating Rp1 million per month for 12 months. With this strategy, the average purchase price is in the range of 28,000 US dollars. As a result, the decline in the value of his portfolio is relatively more controlled, and he accumulates more BTC for potential recovery in the next cycle.

The basic rules of risk management in a bear market:

● Invest only money that is not needed at least 1-2 years in the future. ● Keep emergency funds at least 6-9 months of spending outside of crypto. ● Diversify assets to manage risk. Investors can spread capital across multiple asset classes, such as crypto and stocks, to improve portfolio balance.

3. Focus on Asset Fundamentals

Bear markets often expose the weaknesses of crypto projects that do not have strong fundamentals. Many tokens that seem promising during the bull market phase are actually driven by sentiment and speculation, so when they enter the bear market, their prices never really recover.

Thus, a bear market is not only a selection phase for investors who have high mental resilience and discipline, but also serves as a natural selection for crypto projects. In this phase, projects with stronger fundamentals tend to be able to survive, while the weak are slowly eliminated from the market.

That's why in a bear market, Bitcoin has historically been the top priority of accumulation for investors. As an asset with the highest liquidity, the largest institutional adoption, and a proven track record of recovery in every cycle, Bitcoin is the most proven asset to get out of a bear market and score a new ATH.

4. Sharpen Skills and Analysis

If the bull market is a phase to "harvest" the results of previous accumulation, the bear market is the ideal momentum to build skills and deepen analysis. This phase provides space to learn without the pressure of market euphoria.

Traders or investors who enter the next bull market with a more mature understanding of market dynamics tend to be able to make more rational, measured, and disciplined decisions than before.

Things to learn:

● Technical Analysis

Learn technical analysis which can include indicators, structures, patterns and market psychology. Also deepen your understanding of on-chain metrics such as MVRV Z-Score to identify undervaluation and overvaluation zones. Common platforms include Tradingview, Bitcoin Magazine Pro, Glassnode or CryptoQuant.

● Fundamental Analysis

In addition to studying the fundamentals of assets such as whitepapers, use cases, tokenomics, and others, learn also how macroeconomic factors such as interest rate policy, inflation, and global liquidity can be related to crypto market movements. Fundamental analysis helps you assess the quality of assets, while macro understanding helps you determine the right timing. The combination of the two distinguishes analysis-based investors from speculators who only rely on sentiment.

5. Short Selling

In a bear market, there is a strategy that allows traders who still have the potential to make a profit even though prices are falling, namely short selling. Unlike the buying and selling process in the spot market, short selling is a trading activity that can involve leverage and open a sell position against a Futures contract, meaning that when prices fall you can make a profit. The short selling strategy can be applied in the Futures Door feature for trading crypto derivatives.

When is short selling effectively utilized?

Short selling is most effectively used in two conditions:

1. When the downtrend has been confirmed technically.2. When there is a relief rally, that is, a temporary price increase in the midst of a bear market that can be used as a point of entry for short positions before prices resume their decline.