In the dreams of crypto-enthusiasts, the value of Bitcoin grows constantly. However, the first coin can sag and take to the bottom a large piece of the market. Earning in a falling market is psychologically much more complex than in a rising market. Only a few traders have the skills to play the downside, but this is not the only way to make money on a decline in the value of bitcoin. If traders prepare for a pessimistic scenario in advance and learn strategies to make money on the fall of cryptocurrencies, they will benefit.
Bear market and its peculiarities
A bear market is a drop in crypto asset quotes by at least 20% from recent peaks. Investing in a bear market is often difficult, as the portfolio’s volume inexorably decreases.
Implementing crypto portfolio diversification helps mitigate volatility and minimize losses. However, it does not provide one hundred percent insurance – the portfolio can still fall, but not so catastrophically. During this period, the crypto market is gripped by panic moods, increasing trading volumes storm it, an off-scale fear index, and volatility.
Bear markets generally reflect a general economic downturn and are characteristic of recessionary periods. This is because market players’ expectations of operations and profits are often built into the value of assets. Crowd behavior, trader fears, and the closing of margin positions exacerbate negative trends. Margin positions are trading with ‘leverage,’ i.e., with borrowed money.
Any government intervention in all cryptocurrency processes can also cause a bearish trend. For example, attempts at regulation or bans in certain countries can provoke a significant drop in the markets.
The bearish trend can last long, both months and years.
How to earn on the fall of cryptocurrency
The market allows you to earn at any conjuncture. It does not matter whether the value rises or falls: if a trader knows how to make money on the fall of cryptocurrencies and how to use the full range of crypto investment tools, they will be able to get a profitable deal. The cyclical nature of declines and rises has caused the development of relevant scenarios. With repeated events, traders can prepare clear instructions for diverse variations.
Averaging
One of the most popular crypto investment strategies is averaging. It is considered the most affordable way to play on the downside for investors who work long-term and build their crypto portfolios to realize long and medium-term goals.
The main benefit of averaging is a significant drop in the average value of crypto coins in the market. The strategy works on the assumption that the cryptocurrency prices will eventually head upward. It provides a lower breakeven point for the overall position in a falling instrument and greater returns than if the position had not undergone averaging.
For example, in December 2017, Bitcoin’s value was $18 thousand and later dropped to $13 thousand. During the short correction stage, traders could buy up the crypto in successive steps: $17 thousand, $16 thousand, $15 thousand, $14 thousand, and $13 thousand. That is, the average price was equal to $15 thousand. In other words, earnings on the fall from each coin would reach about $3 thousand.
This method is quite simple, and almost any trader can use it. The critical aspect is correctly recognizing the correction stage, safely entering it, and getting rid of assets when the next growth phase begins.
Nevertheless, even such an accessible strategy is not without disadvantages. Downward averaging or doubling is applicable when the cryptocurrency exchange Binance or another platform rate eventually returns to its previous performance, which ensures profit. However, if the crypto prices continue to decline, the losses also increase. In such a situation, the crypto fund trader can continue the averaging course or stop increasing the losing position at a certain point.
Short position
A short position (‘shorting’) is a profitable but hazardous way to earn on the fall in the rate of cryptocurrencies. What is its essence?
The trader borrows the best crypto coin to buy from the broker and sells it at the current price. They hope that the coin price will soon fall. If this happens, the trader repurchases it, repays the broker, and profits from the difference between the sale amount and purchase.
For example, a trader sells cryptocurrency received from a broker at $200 per unit. At a certain point, the price falls to $170. Thus, the trader has $30, which will become his earnings after deducting the broker’s commission.
Many trading platforms for crypto give clients access to margin trading. However, it is crucial to remember that this is a high-risk activity, which may seem simple only theoretically. You should open a short position only if you are sure the price of the currencies you will work with will fall. Otherwise, you will burn your budget on debt and commission payments.
It is essential to consider that popular crypto exchanges often write off their commissions on borrowed money every 8-24 hours.
However, with a successful outcome, the profit from shorting starts at 7% of the deposit amount. Traders often resort to borrowing money, which helps solve the need for more initial capital.
Hodl
The hodling strategy (a backronym for ‘hold’) involves an investor holding a promising cryptocurrency for an extended period, regardless of whether its value rises or falls.
It is vital to choose such an asset carefully. If a trader sees a coin as reliable and profitable as the best crypto to invest in, one can buy it and hold it until its value surges massively. Bitcoin, for example, has collapsed, recovered, and risen dizzyingly many times.
However, growth cannot be guaranteed. After another drawdown from the maximum of $73.7 thousand in March 2024, the first cryptocurrency has yet to return to its previous positions. At the time of writing, it cost $60.7 thousand. Still, in the long term, the price is constantly rising.
Buy the dip
Buy-the-dip is another income-generating method popular among traders. It involves buying a reasonably priced asset and then waiting for it to rise.
When you buy crypto during its decline, it’s extremely important to catch the right moment to enter the market. Figuring out when it’s already safe to purchase and when it’s early is difficult.
Before resorting to this strategy, objectively assess your financial situation. If you have enough money and are not afraid of losses in the event of a more significant correction in the value of the crypto coin investment you have chosen, buy.
Buy the promising altcoins
You don’t have to stop at Bitcoin or Ether crypto alone. There are enough altcoins in the cryptocurrency market at a much lower value. On the contrary, coins with a modest capitalization have high growth prospects. If they receive the same infusion as Bitcoin, their price will increase significantly.
When choosing an alternative coin for trading in a declining market, you should study all available information about it and use the crypto marketplace (CoinMarketCap, CoinGecko, etc.). You can check its ratings against other currencies, current market capitalization, and other essential figures there.
Tips for playing on the downside
To try to make money on falling crypto assets, use the advice of experts:
1. Monitor the market. Leverage and derivatives are not recommended for novice traders, not so much because of the complexity of the tools but because of the need for experience monitoring the cryptocurrency market live constantly. For a beginner, it is better to first make deals on the spot top rated crypto exchanges until they learn to track patterns.
2. Use risk management. A trader should not allow a complete capital loss because their game will end. Avoiding this will help trades at 20-30% of the available amount or stop-loss, closing the position at the drawdown of the crypto coin.
3. Analyse. Indicators, such as moving averages, indicate the fall. Thanks to fundamental analysis, significant losses are tracked. The further movement of bitcoin and alt coins prices depends on global events.
4. Capture profits. Shorts tend to close faster than longs. The bearish trending crypto can break at any moment in the crypto market, and the price will rise. With take-profit, it is better to determine the size of the profit in advance and close the deal.
Conclusion
Investors suffer from falls, but bear markets offer ample opportunities for traders to make money during the fall of cryptocurrency. Many speculative instruments with different levels of riskiness are offered, especially for such traders. Therefore, make $100 a day trading cryptocurrency is not a miracle but a reality for experienced traders.
Read More: BEST WAYS TO MAKE MONEY WITH CRYPTO
