Discover 7 steps to overcome the crypto bear market: From theory to practice

Each financial cycle has its own challenges. In the cryptocurrency market, when prices plummet and investor sentiment hits rock bottom, understanding strategies is key to preserving capital and even creating profit opportunities.

Crypto Bear Market: A Natural Phenomenon in the Financial Cycle

Unlike the traditional definition of a bear market (a 20% decline), the downturn in the crypto sector has its own characteristics. This phase is not just about normal price drops but also reflects a decline in confidence, excess supply over demand, and a slowdown in economic activity across the industry.

History shows that the “crypto winter” from December 2017 to June 2019 is a typical example, when Bitcoin dropped from $20,000 to $3,200. On average, a crypto bear market cycle occurs roughly every four years and lasts longer than 12 months. This underscores the importance of long-term strategic planning for different market phases.

Seven Actions to Preserve Capital and Find Opportunities

1. HODL - The Patience Strategy of Believers

HODL comes from the abbreviation of “hold on for dear life” (hold tight at all costs). It is not just a trading technique but also an investment philosophy. HODLers are investors who believe that blockchain technology and cryptocurrencies are inevitable and will replace traditional financial systems.

When should you apply HODL?

• You lack the time or skills for short-term trading, scalping, or complex strategies
• You have strong faith in the future of the crypto industry
• You are looking for a long-term investment to overcome FOMO (fear of missing out) and FUD (fear, uncertainty, doubt), hesitation

HODL helps you focus on the big picture instead of short-term price fluctuations, thus avoiding decisions that could lead to losses.

2. Dollar Cost Averaging (DCA) - Regular Buying, Reducing Risks

DCA is a subtle method to stay resilient amid uncertainty. Instead of making a large bet at once, you spend a fixed amount regularly to buy your preferred assets.

Simple steps to implement DCA:

• Choose the asset you want to DCA into (e.g., Bitcoin, Ethereum)
• Determine a fixed amount for each purchase (e.g., $100)
• Schedule the purchase frequency (e.g., weekly or monthly)
• Use a reputable exchange and store securely

This method is especially useful for newcomers or those lacking market forecasting experience. When prices fall, you buy more automatically; when prices rise, you buy less. It creates a reasonable average cost without needing to catch the market bottom.

3. Diversify Portfolio: Fine-tune Capital Allocation

A well-diversified portfolio is the foundation for long-term profits in crypto. You can reduce risk by spreading investments across multiple assets and sectors.

Investment classification:

By type of cryptocurrency:

• Bitcoin: The safest asset with strong appeal from institutional investors. Although it may not have the most explosive rallies, BTC is ideal for bear markets due to its relative stability
• Altcoins: Higher risk but also higher potential returns. Includes blockchain coins, tokens, memecoins
• Stablecoins: Safe assets to hold during recession predictions or waiting for opportunities
• NFTs: Diversify into fields like metaverse, GameFi, digital art

By market capitalization:

• Large-cap: Stable, slow growth
• Mid-cap: Balanced risk and opportunity
• Small-cap: High risk, high growth potential

By sector: DEX, DeFi, Layer 1/Layer 2, metaverse, Web3, AR/VR, AI…

Project selection criteria:

• Clear whitepaper with specific goals
• Strong tokenomics encouraging early adoption and preventing inflation
• Price history and adoption rates showing positive signals
• Avoid projects with pump-and-dump signs

( 4. Short Selling - Profiting from Decline

Short selling )short selling### allows you to profit when the market declines. The process is simple: borrow an asset, sell immediately, then buy back at a lower price to repay and pocket the difference.

However, this is an advanced strategy with high risk. If prices do not fall but rise, your losses can be unlimited. Only apply this if you have experience and use a reputable exchange supporting futures contracts.

( 5. Hedging - Protect Your Portfolio with Derivatives

Hedging is a way to safeguard your initial investment by using derivatives like futures or options. The idea is to hold a position in Bitcoin while simultaneously opening a short position with similar exposure.

If Bitcoin drops 50%, the loss from your long position will be offset by the profit from the short position. The only cost involved is transaction fees, which are relatively small compared to trading volume. Hedging suits those who want to reduce exposure to volatility during bear markets.

) 6. Limit Buy Orders - Opportunities at Low Prices

Placing buy limit orders at very low levels is an interesting strategy many traders use. You may never precisely catch the market bottom because market events happen instantaneously on 24/7 exchanges.

However, by placing multiple orders at unexpected low prices, you have a chance to buy assets at lower-than-expected prices with almost no fees. It’s a passive but effective way to seize opportunities.

7. Stop-Loss Orders - A Safety Net for Your Portfolio

Stop-loss orders ###stop-loss### act as an automatic safety mechanism. When an asset’s price drops to a predetermined level, the order automatically sells to limit losses.

Benefits of stop-loss:

• Maintain trading discipline, prevent irrational decisions
• Remove emotions from your strategy
• Ensure you do not hold a long-term loss

Combine stop-loss with take-profit (profit-taking) to create a disciplined and clear trading framework.

Effective Portfolio Management Tips During a Downtrend

( Invest only what you can afford to lose Cryptocurrency markets are unpredictable. If you’re a beginner, start small, monitor the market, familiarize yourself with trading interfaces, and accumulate experience gradually.

) Continuous learning and updates Follow news, social media posts, observe actions of professional traders. Pay special attention to new regulations as they directly impact crypto prices.

Conduct thorough due diligence

Read whitepapers, understand tokenomics, research the team behind the project. Avoid investing based on rumors or hype. Every project should have clear goals and practical development plans.

Store cryptocurrencies securely

Cold wallets ###hardware wallets### like Ledger or Trezor store private keys offline, offering better protection than hot wallets. This is an essential step to safeguard assets long-term.

( Set clear financial goals Define your investment objectives and risk tolerance. Do not let social media hype divert you from your plan. Use take-profit and stop-loss orders to manage your portfolio practically and unemotionally.

Conclusion: Bear Markets in Crypto Are Opportunities for Prepared Investors

Down markets are not the end but a vital phase in the crypto cycle. Investors with a plan and discipline can flexibly apply strategies like HODL, DCA, diversification, short selling, hedging, limit orders, and stop-loss to not only preserve capital but also generate significant profits.

The key is to understand each tool thoroughly, manage risks wisely, and always remember that crypto bear markets are a natural part of the market cycle. Those who prepare well will have a significant advantage when recovery occurs.