As crypto markets continue to slide, we’ve seen a flurry of users panic selling and crypto snowballs — you know, where people give their tokens to someone else in the room (usually because they think their token is worthless and no one will want it).
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But these aren’t signs that the end is nigh for crypto. The downturn has been predicted for some time. The crypto bear market may seem like bad news, but it’s necessary for sustainability in the long-term. In this article, we take a look at why the bear market is good for you as an investor and why you shouldn’t panic about it going forward.
Introduction to the Crypto Bear Market
A bear market occurs when the price of a given asset falls and continues to fall. In the case of cryptocurrency, a bear market is when a given token’s price falls by at least 20%. Once a bear market is in progress, the price usually continues to fall for months or even years.
It's important to note that all markets go through cycles of growth and decline. This is especially true for cryptocurrencies since they’re still such a new type of asset. Cryptocurrency investors can expect to see significant fluctuations in price over short periods.
We’ve already seen a few major market cycles since Bitcoin’s inception. There was a bull market in 2017 when the entire crypto market grew significantly and a bear market in 2018 when the market fell by about 75%. And we’re currently in a bear market right now, where there’s no clear end in sight.
A little background
It seems that we’ve entered a new period of a bear market as the market has been falling ever since. The bull market in 2017 was caused by a few major events. The first was the initial coin offering (ICO) craze. During an ICO, a company will sell a token to fund its project. The token is usually a new cryptocurrency that’s not yet listed on any exchanges.
During the ICO, the token is typically sold at a discount to make it affordable for investors. Once the token is listed on an exchange, the price will increase, and investors will make a profit. ICOs were incredibly popular in 2017 because they were a quick way for companies to raise money.
Another big factor in the bull market was the rise in the price of Bitcoin. As the most popular cryptocurrency in the world, the price of Bitcoin is often used as the benchmark for the entire crypto market.
Investors tend to move their money between different cryptocurrencies. If one token’s price is rising, others will likely follow.
Why had there been a bear market in the past?
The ICO craze was a huge part of the bull market in 2017. ICOs were hugely popular and they were the main way that new companies were raising money. Unfortunately, some ICOs were scams. Others were simply useless ideas that would never generate enough revenue to sustain themselves.
As the ICO frenzy continued, more and more companies were trying to launch ICOs. They were often raising millions while only promising to create a token that users might want to use. People discovered that many of these tokens were never worth much.
As a result, ICOs became much less common. As the ICO industry slowed down, so did the price of tokens for the most part. The market is continuing to decline as tokens that spent most of their time rising slowly start to fall.
It’s a great time to buy into your favorite coins
The bear market is a great time to buy into your favorite tokens. Here’s why: -
• The token is likely to rise once the market recovers. While the price of cryptocurrencies is low, there’s a chance that you could buy in at a discount. If you believe in the token and the project behind it, you can make a nice profit once the market recovers.
• If you panic sells, you risk losing money. If you sell your tokens at a low price and they start rising, you may wish that you didn’t sell. If you sell now, you may not be able to buy back into your favorite tokens once the market recovers.
• You can wait it out. If you believe in a token, you don’t have to sell. You can buy your favorite coins on the cheap and ride out the storm.
• Many projects are offering discounts while the market is in a downturn. You can take advantage of these discounts to buy tokens at a lower price.
• If you’re interested in a token, you can probably wait for the price to drop lower before buying in.
Don’t panic, you can still make money in a bear market
While the bear market is scary, you can make money during it if you know what you’re doing. Remember that the tokens are still growing. If you have a long-term plan to hold (HODL) your tokens and a long-term vision for their growth, you can still make money in the short term.
The key is to avoid the following mistakes:
• Don’t panic sell.
• Don’t try to time the market or use complicated trading strategies. The market changes quickly and you’re likely to make more money by holding onto your tokens.
• Don’t invest in a token that you don’t understand. If you don’t know what the token does, why it’s valuable, or how the company behind it intends to make money, you may want to avoid the token even during the bull market too.
Knowing your investment strategies will help you weather the storm
Cryptocurrency is a volatile industry. There will always be ups and downs, gains and losses. The key is to understand your investment strategies so that you don’t panic and sell when prices drop. During the current bear market, it’s best to stay calm, patient, and focused on your long-term goals.