What Is a Crypto Bear Market?
When supply exceeds demand, asset prices fall. Investors suspicious and anticipating further market declines are known as “bears.” In a crypto bear market, the majority of assets are trending downward.
It’s easy to misunderstand a brief and severe decline in cryptocurrency prices as the beginning of the end of a bull run, considering the extraordinary volatility of the crypto market. The term “bear market” is usually reserved for more extended time horizons because of the extreme volatility that crypto markets often suffer daily (or even moment-to-moment).
Inflation, excessive unemployment, and political unrest are macroeconomic issues that might contribute to a bear market. Nonetheless, keep in mind that market fluctuations are natural and expected.
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What Happens in A Bear Market?
Investors might need to be corrected while entering the cryptocurrency bear market for the first time or when they need more information. This is why it can be helpful to gain insight from others who have lived through previous cycles and to look out for these mistakes so that money and emotional trauma can be preserved before they are encountered.
When Bitcoin’s price went below $4000 in March 2020 due to the COVID meltdown, many people worried that the worst was yet to come as the globe teetered on the verge of economic ruin due to widespread security measures and the threat of a pandemic. Contrary to expectations, however, Bitcoin instead saw a meteoric bull run, eventually reaching a price of over $69K a year later.
No one can predict the market’s future direction; all predictions are educated guesses.
5 Mistakes to Avoid in A Bear Market
Losing money on investments is a scary prospect. However, you may safeguard your money and alleviate stress in a down market by avoiding five typical blunders by crypto investors.
- Panic
There is no good time for panic. Since panic is typically a reaction to a real threat, panic evokes a strong feeling of fear and anxiety. When this occurs, we are more likely to lose composure and make irrational impulsive responses. Panic selling, in the context of trading and investing, is the widespread selling of a cryptocurrency out of fear, rumor, or an overreaction instead of a calm and calculated evaluation of the market situation. The temptation to liquidate your holdings when you notice a decline in their value is understandable. Even though it’s possible that holding onto all of your assets during a down market is not the best strategy, selling everything in a panic is also not the best option. Instead, before selling or buying cryptocurrency in a bear market, one should always conduct their research and talk with a personal crypto broker.
- Putting in Emotional Efforts
Bear markets in cryptocurrencies should be expected, and the sudden loss of value in investment shouldn’t be taken as a sign of impending doom. When under pressure, people often make rash financial decisions based on their feelings rather than their thinking. The best way to avoid feeling regret when the asset’s price recovers in a bull market and exceeds the price you sold at in a panic is to keep your emotions in check before making rash decisions.
- Investing short-term
Buying crypto to flip it quickly is enticing; however, short-term investments are risky, and overtrading can reduce profits because it increases expenses. Short-term investments can be part of a portfolio, but not all. Emotional investments could be short-term investments held to flip. Due to FOMO, short-term investing is emotional. High-quality, long-term investments may increase slowly in the short term, but they can protect your portfolio during downturns. Even quality assets like Bitcoin and Ethereum go through downturn markets. Still, they have a better chance of preserving value over time compared to lower-quality investments that will perform less consistently.
- Overtrading
Mishandling emotions contributes to this. Overtrading often results from misreading an investment theory, missing an opportunity, or wanting to recoup earlier losses. All three prompt emotional decision-making. Remember, the market doesn’t care about your feelings; charts are just visual representations of information. It’s up to you how you interpret it. This is an objective process where emotions have no place.
- Mental Health
All of the above shows that mental health is crucial. Money can’t buy health. As cryptocurrencies become more mainstream, it’s vital to mention this as more individuals trade and invest in crypto.
Mind your mental wellness. If you believe bitcoin will last, investing long-term can be stress-free.
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