Cryptocurrency prices have plummeted, some crypto projects have gone bust, many companies are struggling and have stopped hiring, and the usual “crypto is dead” headlines are hitting the mainstream media. Things aren’t looking good.
But those who have been in crypto for a while have seen it all before. Crypto’s extremely cyclical, characterized by bear and bull markets. In bull markets, like the one that started in late 2020 and ended in late 2021, prices can rise by double digits on a daily basis. During those times, it feels as if the market is destined to go only up. But in a bear market, prices may fall 90%, followed by another 90% and so on.
Although the previous crypto bear markets coincided with bullish sentiments in equities, now crypto is tightly correlated to a macro environment with a recession potentially on the horizon.
Should you panic? Should you double down on investments? As we enter the depths of the bear market, CoinDesk has asked survivors of the last bear market for tips on how to stay sane during downturns, decide and take the right courses of action and prepare for the next bull market. They were crypto newbies when they began, but today they are deeply embedded in crypto, participating as investors, developers and traders. Here’s what they had to say. Take a profit
To HODL or not to HODL, that is the question.
In crypto, resistance to selling – holding or HODLing – despite a gloomy outlook is a widespread behavior. “Don’t risk your lifestyle because of a HODL meme. No one went broke taking a profit,” Tyler Reynolds, a Web3 investor, told CoinDesk. Taking a profit means selling a percentage of your gains. It doesn’t necessarily mean getting out of the market completely.
“For your sanity, you may be best off determining a portfolio-wide stop loss where you say you will sell everything if it gets below a certain amount,” he said. Most centralized crypto exchanges let users place a stop-loss order either in terms of a percentage drop (sell bitcoin ( BTC ) when it drops by X%) or a specific price (sell BTC at $X).
“Set sell targets/take profit levels in advance, at least loosely, and stick to them. Your objective self from the past is a better guide than your euphoric self in the future,” Cred, a pseudonymous trader, told CoinDesk. Cred has a free and comprehensive technical analysis course available on YouTube. Avoid panic selling, but also avoid greed
Taking a profit, and perhaps having a strategy to exit the market completely, doesn’t mean panic selling.
“Avoid panic selling unless you’re in the urgent need of money,” Fedor Linnik , builder of several NFT ( non-fungible token ) projects, said. And in retrospect, he said, “being greedy and being afraid to miss the top” was a mistake he made in 2018. Make your selling decisions based on data, not on emotion or on advice from social media. Stay solvent
Most people who invested in crypto in late 2020 saw their portfolios at all-time highs in April or November 2021. But the fireworks are behind us.
“Don’t trade or invest with the mindset of ‘making back’ what you lost in the bull; it’s an inherently flawed comparison,” Cred said.
Although it may be tempting to try and “ make it back in one trade ” by entering highly risky trades, revenge trading can also easily backfire. Alex Svanevik, CEO of data analytics firm Nansen, said staying solvent is key in a bear market, and it helps if one didn’t “touch leverage .”
Leverage is a common tool in crypto markets, but resorting to leverage to buy coins in a falling market “has a much higher chance of ruin and will erode your mental capital,” Cred warned. “Even if you manage to get a good entry, the chances that you have the mental fortitude to hold a large position like that are significantly reduced.” Research projects
Crypto is a place for innovation and experimentation. Many projects pop up, die, reinvent themselves, succeed or vanish from memory. Crypto projects often have tokens associated with them, and the tokens are often (but not necessarily) tied to the success of the projects, especially during the early days.
Reynolds said what worked for him during the last bear market was to keep investigating both new and old projects. “You will need to keep re-investigating as projects pivot from their original idea and find a much better product-market fit, like Aave ,” he said. “I look for a core new mechanism […]
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