The crypto market has experienced significant price drops in recent months. For instance, Bitcoin reportedly lost 65% of its value in 2022. While these price drops are not new to the crypto ecosystem, they can trigger panic which could ultimately lead to rash investment decisions. Thus, as an expert or beginner investor, you must learn how to protect your investments and limit your losses.
Protecting Your Crypto During Bearish Runs
Bear markets generally occur when there are consistent and significant price drops. These price drops are dips of at least 20% (compared to previous highs). For instance, if Bitcoin or Ethereum experience price drops of 20% and lower, the crypto market will be regarded as bearish. While other altcoins might not necessarily experience the same level of price drops as Bitcoin, confidence is often low across the market.
Bearish runs have many root causes. Government bans, wars, and pandemics are some of the events that have triggered a bearish crypto market. For instance, Bitcoin lost half of its value in the first few days of the COVID outbreak.
However, while bearish markets can be stressful for investors, there are ways to limit your losses and even earn profits. Bearish markets can be an opportunity to expand your investment returns. While it might sound cliché, you can earn significant profits from buying the dip. However, you must conduct extensive research before proceeding. This is because there are high risks that the crypto you decide to invest in will only experience further price drops.
One way to hedge against such losses is to utilize the Dollar Cost Averaging (DCA) technique. The DCA involves breaking your reserves into tranches before investing. For instance, if you have $500 to invest during a bearish run. You can decide to invest $50 in your desired crypto, then watch market movements afterward. This way, if the crypto experiences more price drops, your losses won’t be as significant as they would have been if you had invested all $500.
Another way to reduce your losses in a bearish market is to utilize the stop loss function. The stop loss function is an order available on many crypto exchanges. It involves selling your crypto once it drops to a certain price. For instance, you can set a stop loss order to automatically sell your Bitcoin immediately after it drops to $15,000. This way, you can significantly reduce your losses and lessen your investment risks.
Investment diversification is also another way to protect your crypto in a bear market. When you diversify your portfolio, your risks are not centered on a single source, and you can easily hedge some losses with profits from other coins. Alternatively, you can decide to completely exit the market and place your investment in stablecoins. The only downside of this strategy is that you will be unable to earn profits.
Conclusion
Ultimately, it is important to avoid making investment decisions due to panic. Excelling as a crypto investor often requires you to block out the noise and make strategic decisions. Panic will hardly help you achieve that.
