The past few months have been a roller coaster ride for cryptocurrency, and many top news outlets have claimed that we might be in another crypto winter. The recent fluctuations have left many wondering about the future of their investments.
Recent trends from the past four months indicate that the crypto market has been in a bear-ish run. However, despite the downward trend, the best cryptocurrency traders are still able to profit.
Bull vs. Bear Market
Before learning how others profit in a bear market, it is important to understand the difference between Bull and bear markets.
A crypto Bull market marks a sustained period of time when prices are consistently rising, usually for at least two quarters.
A bear market is the opposite, where the market sees a downward trend in prices. During bear markets, traders tend to be pessimistic about their investments as millions of dollars in crypto leave the market.
One thing to note is that neither market lasts forever and the volatility of crypto promises a regular swing between the two. Smart investors don’t get too comfortable with either. Here are some tactics top traders use in a bear-ish market.
Staking
In crypto, staking is a strategy where traders commit to keeping their investments connected within a specific platform. Staking is essentially a method of holding your investments and locking them in to protect them from the harsh volatility of the market. You can think of staking as holding/keeping your crypto investment in a savings account.
A proof of stake is a “consensus mechanism” used by cryptocurrencies to validate your transactions and ensure that they are secure without the use of a middleman, like a bank. Proofs of stake are useful because they increase the speed and efficiency of transactions, while reducing the cost.
Staking is a helpful strategy during bear markets because the more you stake, the more the cryptocurrency prioritizes validating your transactions, earning you more money just by keeping it on the same platform.
Yield Farming
Like staking, yield farming is essentially a trading strategy where you hold your investments within a platform to earn interest over time. The amount of interest earned depends on measures such as the amount of time it is being held and the popularity of the platform’s token.
In yield farming, you loan or stake your tokens to others with the goal of earning interest over time. The interest is returned to you in the form of the platform’s tokens. Yield farming is profitable because not only are you making money just for using the platform, but the strategy benefits from network effects. The more users that use the platform and loan out or borrow tokens, the more the assets grow in value and the more money is generated to be returned to the yield farmer. Think of it as a rewards program that rewards early adopters of the system.
One thing to note: staking and yield farming do not come without their own risks. In staking and yield farming, you are buying and staking a specific token. The more tokens you acquire, the more you can potentially profit or lose. If you place all of your cards on the performance of one particular token, you are at risk of losing money if that token decreases in value. Therefore, while both can be good strategies to profit, it is still important to watch the market for potential changes that could affect your investments.
Margin Trading
Margin trading is only recommended for more experienced traders. While margin trading can result in increased profits, it can also cause you to lose way more than anticipated. Margin trading involves using money borrowed from other traders to invest and trade cryptocurrency—usually Bitcoin. The process of using borrowed money for investments is called leverage. Leverage is the reason that margin trading can be risky, but also very profitable.
Look Out for Unknown, Profitable Companies
While not all small projects will be profitable, there are always some unknown and small yet profitable companies that are waiting to be discovered by lucky traders. Most projects do not end up as successful, so seasoned investors know to do thorough research on newer projects and invest in the right ones. Once they are available to the public, seasoned traders use these types of investment to profit—even in a bear market.
Look at What Pros are Doing
Many of the above tactics require a decent amount of knowledge of how the markets work. The social trading platform League of Traders has a powerful copy trading feature that enables users to track and copy the moves of more experienced traders at the click of the button.
This way, even novice traders have a chance of making a profit despite declining market conditions. Over time, copy trading can help novice traders understand the market and benefit from a number of different tactics.
Conclusion
While the above tactics are useful methods of profiting during a bear market, seasoned traders know one tactic is most important: not to panic. It can be easy to feel a sense of dread when you see the value of your investment quickly dropping, but just remember that bear markets do not last forever. Experienced traders have already been through the crypto winter of 2017/2018. They then saw the bull market of 2020 that extended well into 2021.
Rachael Villam is a certified crypto zealot, finance writer, and a steady swing trader. She is passionate about blockchain’s capacity to transform cities, commerce, and the entire banking system as we know it. Dune bashing, camping, and working with kids are his non-crypto interests.