The cryptocurrency market suffered a major breakdown this week due to the Terra Luna coin fiasco and the depegging of their UST stable coin. The total market cap tumbled from over CA$2trillion at the start of the week May 8th, 2022 to a Thursday low of $1.45trillion - a drop of $500billion in the overall market. Bitcoin has fallen to a new 52-week low of $34,291.61, below 61% of its all-time-high of $89,520.41 during the bull-run peak 6 months prior on Nov 10, 2021. A brief bounce early Friday morning for the market may not be sustained as Bitcoin will most likely close its seventh weekly red candle if it fails to close over roughly $44,200 by the week's end.
Bitcoin has closed out six weekly red candles in a row on May 8th, which has not occurred in eight years, since 2014.
As Bitcoin sets new lows for the year, many called for a drop below US$30k which was breached Wednesday. Bitcoin is currently trending towards its 200-day moving average of US$21.8k (CA$28.4K) signifying a further downside of 30% or more as Bitcoin sits at CA$39k at the time of writing. With the Luna/UST debacle fresh in the mind, poor economic outlook for inflation and the continued conflict, a crypto bear market is still in play.
Navigating a Crypto Bear Market
There is no denying we are in a crypto bear market as we are in a prolonged downturn after peaking six months prior. Many theorize we will continue to be in a "crypto winter" until the next Bitcoin halving which is expected to be on March 30, 2024 before we enter the next bull run. Here are a few pointers to consider to navigate a crypto bear market:
1. Invest What You Can Afford to Lose
Although a bear market is where one can generate the most wealth from as you accumulate at reduced prices, always invest what you can afford to lose. Crypto is highly volatile and there are too many devastating stories of people losing their life savings.
2. Choose Your Crypto Wisely
DYOR! After a bear market, not all cryptocurrencies will make it out alive. Comparing the top 10 from 2017 peak to the 2021 peak, only 3 remain on both lists: Bitcoin, Ethereum, and Ripple. The safest play is to invest the majority in Bitcoin and Ethereum (they are both the largest, have withstood the test of time and most likely to survive) and a small percentage in alt-coins which you believe will peak the top-ten on the next bull run. The ratio you invest in multiple coins is up to your risk tolerance, but don't forget point #1!
3. Dollar Cost Average
It is extremely hard to time the market, especially when we are in a bear market and no one is certain how long it can last. Therefore it is beneficial to set aside some investment cash (don't forget point #1) and purchase your coins (point #2) in set intervals of your choice whether daily or weekly, etc. This will prevent you from investing too early as prices can continue to fall and will average out your purchase price.
4. Do Not Invest With Emotions
Investing in a bear market can be mentally exhausting, but you should never invest with your emotions. You may be tempted to sell for a loss when fear takes over as your investment value cuts in half, but if your reason for investing and fundamentals for the crypto haven't changed then what is your reason to sell? That brings us to the last and important point: when to sell.
5. Have an Exit Strategy
To ensure you realize those paper gains you need to have an exit strategy and stick to it. Whether you plan to take a percentage profit when you gain 20%, 50%, or 1000%, this is where you build your wealth with crypto - taking profits. Your exit price must be reasonable as well (If your market cap for your alt-coin at your sell price is higher than that of Bitcoin then it's probably not reasonable!)
The bull markets make you feel good, but bear markets will make you wealthy. Experienced investors know this as they see the bear market as a time to accumulate strong and promising cryptocurrencies, and the bull markets as a time to realize those profits for the next downturn. Consider our five pointers as you decide whether to build your wealth with crypto and navigate through the current bear market. Stay safe!
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