What To Do In Bear Market

in LeoFinance2 months ago

Then said the king to the servants, Bind him hand and foot, and take him away, and cast him into outer darkness; there shall be weeping and gnashing of teeth.
Matthew 22:13 (KJB)

It looks like people don't like to write about bear markets that much. Maybe they're afraid to jinx it or think about the bear market as some outer darkness. However, bear markets are simply part of the game.


Recently I've got inspired by an article on what to do when the crypto market is crashing. A nice article, really. Today I would like to highlight some points in it and then to add my 2 sats too.

It’s early in the morning and you want to check your portfolio performance during the night. It increased by 20% in the last seven days, so the first thing you do is to open your mobile app or turn on your laptop to check the market. Oh, surprise! All your coins are down by -30%. At this point you start to worry, your anxiety level is up to the sky and you can’t stop regretting everything in your life, but wait, calm down, and breathe because I have to tell you a few things.

Rather dramatic, isn't it?

Indeed, it's good to calm down first. Then we should look at what actually happened, was it a "local dump" or a "global" one.

By "local dump" I mean that the market as a whole is rather Okeye, but some coins (or even only our Preciouses) considerably dumped. We should learn the reason why it dumped and then act accordingly. The reason can be some "normal" volatility or the coin was over-pumped by some Reddit group or some external RIPple-case event happened and so on. Depending on the exact reason, the decision can be to hodl, or to sell, or to buy more of the shit. Actually, "local dumps" is a big story, but I don't want to go into it right now.

Instead, I'd want to talk about "global dumps", i.e. when all the market goes down. A flash sell-off, a month-long downtrend, or a sluggish flat. In other words, it's the situation when we can't anymore buy any shit and then sit flat on our asses watching it grow.

First I must note that if we wake up and suddenly see everything 30% in red -- it means something is rather wrong with our "investment" approach. Even if it's hardly possible to predict dumps (unless you're a "whale" who orchestrates such dumps), it nearly always is rather obvious well beforehand that "something's cooking in the market". If we "invest" not in between jerking-off, but spend some time watching our "investments" and the markets on a daily basis, over time we'll get some inner feeling of the market.

Anyway, it all dumped out of the blue.

Anyways, we don’t have the crystal ball to divine the future but what we know is in the long term, the market always goes up. This could take one month or some years to recover, so you need to be patient.

Well, "in the long term" we all are pretty much dead, as Mr. Keynes put it like 100 years ago. And it indeed took DJIA "some years to recover" from the 1929 crash -- about 30 years, to be exact. Imperial Russia had a very lovely stock market, the Imperial Russian stocks were welcomed even at LSE. I wonder how many LSE investors still hodl Imperial Russia's bonds and stocks. However, historically the markets generally go up sooner or later, simply because of inflation and economic rebound (how it applies to crypto is another story). But even if the market as a whole goes up sooner or later -- it's not necessarily true for a particular stock (or coin, in our case).


Anyway, it all dumped and it goes only lower every day. The best thing would be to take all the profits we cashed out before the dump and go relax somewhere at the sunny seaside to wait for the next pump wave. Alternatively, if there are no profits and no experience beyond buying and hodling some hyped shit, then we simply forget about our "investments" for some years (forever, in the worst case).

To sell or not to sell -- that is the question! If we sell, we save some funds for a fresh start -- at risk of selling at the bottom. If we don't sell, we're at risk of helplessly watching our funds melting further down, maybe for "some years". A tough question, indeed, which has no definite "right" answer.

However, for active "investors" dumps, flats, and bear markets are nearly the same profitable opportunities as pumps (provided that they have saved enough funds to make a fresh start).

Short selling the most obvious opportunity. Quite a simple concept theoretically, but technically a bit more tricky than "ordinary" buy&hodl. Short-selling requires more experience because dumps are generally less predictable and go faster than pumps. Short-selling requires some special "instruments", i.e. we can't short-sell any shit we want at any exchange we want. Quite often short-selling requires paying additional fees (interest on assets we borrow). Also I must note that theoretically in short selling the possible loss is infinite. That is, if you go long, buy shit at $100 and its price dumps to $0 -- you lose $100 only (again, highly theoretically the price can go into negative and you lose more than $100, but it's extremely rare case practically). On the other hand, if you go short and sell some shit at $100 in hope to buy it back at $50 -- the shit can suddenly go up to $200, $500, $1M, to the Moon, indefinitely. If you shorted at $100 and covered at $1M -- the loss is $999900.00 plus fees and interests (fortunately, the exchange will probably liquidate you well before).

Trading as usual because bull, bear, and flat markets nearly always have some volatility. There's no big difference between trading BTC in $1-$10 range and $10K-$100K range, provided that the market is alive and liquid enough. Trading in a range is a bit more tricky than simple trend-following but quite learnable. In crypto it's even possible to trade shit for shit, that is we can trade BTC for ETH and vice versa to grow our BTC (or ETH) stack, regardless of how much BTC price is in USD terms. Hopefully, we'll trade more BTC by the time a new pump begins.

Money market is those bonds, loans, everything that loosely corresponds to DeFi in the crypto-world. Bear and flat markets are good for DeFi experiments (provided that DeFi survived the dump). Of course, it's hard to expect to make x100 returns with DeFi during a bear market, but even 10% yearly is still better than nothing and much better than a loss. We only need enough free funds to cover fees and have to avoid scams, rug pulls, and other shit.

Shortly, dumps, bears, and flats are a fun and potentially profitable time for those who have some spare funds and is ready to go a bit beyond simple buy&hodl "investment". And pump time is the best time to think about a dump. Japanese Bushido prescribes samurai to think of death daily. I'd say traders and investors should think of the market crash on daily basis too.

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