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In the trading ecosystem, there are two types of markets. Both get their names from two powerful animals, the bull and the bear. While the former is the ideal traders hope to encounter, the latter is a bit more problematic. That’s because the bull signifies a market that’s on the rise, and a generally favorable economy. Conversely, the bear stands for recession and stocks that are declining in value. Regardless of personal opinion, they both exist and the trading world is constantly oscillating between the two. At the moment, investors are starting a rather powerful bear straight in the eye.
Recent years have come with many challenges for the trading world, ranging from the disastrous effects of the pandemic, as well as heightened political tensions, culminating in full-blown warfare in parts of the world. All these unfavorable events serve not only to create feelings of fear and apprehension, they also carry global implications for financial security. Adding to that, the incoming energy crisis is likely to only deepen the existing issues and make for a truly difficult fall and winter.
The crypto market has been affected as much as stocks, bonds and mutual funds. This has given naysayers license to continue their attacks on digital currency, deeming it a fundamentally unstable resource, one no self-respective investor should be meddling with. But that’s a narrow-minded view you should stray from. While the times are more difficult, it’s important to remember that periods such as this arise every now and then and are part of the market’s natural fluctuations. Here is some advice on better navigating the troubled water of declining value so that you keep swimming rather than sink.
Precedence
This may sound like a trying time, but it’s important to realize it’s definitely not the first bear market episode in the crypto world. Traders have witnessed this before, and it’s good to look at the past to gain insights. Examining the previous crises helps paint a clearer picture of when you can expect a betterment of the situation. It can also serve to give you some valuable insights into what you need to do in order to keep your funds in good order.
The first example is the bear market of 2014-2015. It occurred following a steep increase during the latter months of 2013. After reaching skyrocketing heights, prices dropped, and it was not until mid-2015 that the markets finally showed the tell-tale signs of recovery. 2018 saw another crypto winter. Much like its predecessor, it occurred in the context of a previous all-time high for crypto. Change finally rolled in at the beginning of 2019, when a bull market replaced the crypto ecosystem slump.
The current market decline has been caused not only by crypto fluctuations, but also by digital currency’s increasing correlation with traditional markets. Digital money has a well-known reputation for volatility, but it is actually its integration in well-established markets that made it truly vulnerable to escalating energy prices and inflation.
The measures to take
When it comes to bear markets, it can be more difficult to anticipate what’s in store for you. There’s a great deal of uncertainty surrounding the situation, and this causes many traders to act rashly. For instance, a considerable number is likely to try and sell everything they own, in a bid to obtain some form of profit off of their coins. While this makes sense in theory (and offers a mechanism of psychological worry alleviation, since it’s understandably difficult to just stand by and watch your crypto’s value plummeting), it is a helpful strategy only in the short-term.
The tried-and-tested strategy in all kinds of trading is buy low, sell high. Therefore, it’s better to consider how to buy crypto currency, rather than attempt to sell it all. The popular, well-established names in the industry, such as Ethereum, can be used as a store of value assets, whose worth only increases over time. Crypto’s skeptics and critics will point out that compared to other assets, that have been around for hundreds of years and as such have more experiences with harsh declines and the period of getting back on track, digital money has only been around for a decade or so. While there’s no guarantee that the ETH market, or that of other cryptocurrency, will go up in the very near future, time will show that cyber money is more resilient than many believe.
Organizational strategy
At an institutional level, things are a little more complex, but based on the same parameters. They also sell during times of optimism and buy when everyone is panicking and scrambling to make sense of what’s going on. Heightened volatility makes them more prone to challenges along the credit lines, as well as illiquid order books. This is why many organizations favor block trading during these times.
Clock trades are large transactions that are typically negotiated privately. Nevertheless, they aren’t executed all at once, but rather broken up into smaller orders and carried out through different brokers. This strategy allows them to perform major trades that would otherwise trigger buying and selling ripples across the markets. They also help minimize the price slippage typically associated with large market orders.
It doesn’t hurt to take a page out of the book of institutions and adopt similar strategies. You’re going to have to size them down so they fit your individual buying capacities, as well as your risk tolerance level, but it’s going to make a whole world of difference for you.
The bottom line
Crypto has become increasingly visible in the public sphere. No longer the domain of the few and far between, a niche interest reserved for a very small group, an increasing number of people are becoming aware of its existence. Businesses are beginning to accept it as a valid form of payment, and you can make online purchases you pay in crypto these days. It is quite extraordinary, as only a handful of years ago, not many would have entertained the possibility.
However, this has also made cryptocurrencies more vulnerable to world events, politics, as well as other assets. The ongoing bear market affects it as well, as a result. But it won’t last forever. In the meantime, make responsible decisions.
