Maximizing A Bear Market

Thoughtful Creativity

Bear markets often arrive with a sense of heaviness and desperation for the majority of market participants. However, It’s not all bad, and once you have experienced a few, you almost begin to look forward to them. A bear market can be extremely profitable. Once again, it’s all about the approach. So, how do you actually handle a bear market? How do You walk away with a higher portfolio value than you had in the bull market?

Due to the fact that most investors view Crypto as an asset class that appreciates at an accelerated pace, a bullish bias develops in the minds of investors. This creates a negative connotation towards any price action apart from parabolic. Yes, there are phases of extreme upward momentum. However, just like every other market, nothing moves in straight lines. There are numerous ways an investor can navigate a bear market.

However, when you break any strategy down to its core, you will find these principles to be present in some form or manner. How each investor chooses to utilize them is up to the individual.

Shift To Stablecoins

This is perhaps the most important move, as it preserves capital, and the more accurate you are, the better! What you typically find is that investors choose to react, as opposed to initiating a predetermined plan. Another issue that often arises is that this causes the majority of investors to miss the initial phase of a bear market. They then put off moving into stablecoins because they anticipate a bounce, not realizing (or choosing to ignore) how severe a bear market can become.

Moving into stablecoins is an essential part of any strategy, as it gives the investor capital to work with. This is incredibly important when it comes to the next point. In order to short any market requires capital, and if you don’t have it you won’t be able to participate in shorting or buying the bottom unless you are making use of fresh capital.

Shorting

Stablecoin allocation is imperative, whereas shorting is extremely powerful. Once a bear market kicks in it becomes highly unlikely that the market will experience any significant correction to the upside. This is the perfect opportunity to enter into long-term short positions. These positions can be increased as the market continues to fall. Modest leverage can also be utilized as a way to amplify profits.

The application of these strategies is very much applied as protocol. Emotions are ignored, and the application becomes systematic. Being able to disconnect yourself emotionally, as well as following the rules that you have put in place, is what brings success. Disciplined execution is imperative.

Dollar-Cost Averaging Into Cash/Stablecoins

This is where so many get a bear market all wrong! As the market begins to edge lower, they begin comparing the current price to the all-time highs and so reason that prices are heavily discounted. They begin to DCA into a collapsing market. Tell people this while they are busy doing it and expect to be ridiculed. However, give it some time, and the foolishness of this approach is rather evident. However, a fool is always right in his own eyes, so there will be those who never learn.

Instead of dollar-cost averaging into the market, investors should be allocating that capital into stablecoins or even cash. Even if you do not end up buying near the bottom, holding off until the bear market has matured will always be more lucrative. Don’t go around catching falling knives, especially when it comes to the long-term scenario.

Passive Income

Being continuously busy with the development of passive income mechanisms is always a good idea, regardless of the market. These mechanisms become extremely valuable during a bear market, as they are able to generate an ongoing flow of investable income. This avenue can be utilized to complement the abovementioned strategy. Due to the reality that this is in fact “free money”, if you really want to DCA, then this is the capital you should be utilizing.

The reason for this is that there is no real element of loss, as the capital is in essence free. However, dollar-cost averaging with your hard-earned money will definitely leave a bad taste in your mouth as you watch your investments shrink over time.

Buying The Bottom

It is fairly difficult to call a bottom. However, establishing a zone is not that difficult at all. I have been aiming at a certain level for almost a year already, and still, it has not been reached. What does this mean in real terms? It means I avoided buying a collapsing market. If it is not reached, I will be buying a reversal. What does buying a reversal mean? It means I won’t be losing money. There needs to be a stronger sense and understanding of risk management among investors.

Remember, the preservation of capital is actually more important than making money! You can’t generate profits if you don’t have any capital to work with.

Tax Harvesting

In the event that you still find yourself holding assets that are down 90% or more, the best solution is to sell them just prior to the end of your particular tax period. This will incur a loss and will assist to lower your taxable income. If you wish to continue holding these particular assets over the long term, you can simply repurchase them again.

Selling the assets at a loss creates a tax event in your favor, and is necessary if you wish to make a bad situation work in your favor, at least to some extent.

Anyway, I hope this has been helpful in stimulating some thought into how you approach the next bear market. See you next time!

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