This educational guide exploring How To Protect Crypto Assets in a Bear Market was created in conjunction with Caleb & Brown. Caleb & Brown is the world’s leading cryptocurrency brokerage. Learn more here.
For many inexperienced investors, the transition between the 2021 bull market and the 2022 bear market may have had dramatic effects on their portfolios.
The simple reason is that both equities and cryptocurrencies do not behave the same way in a bull market as they do in a bear market. This seems like such a common sense conclusion that it’s barely worth stating, but, for those who have never experienced both ends of the market spectrum, it’s worth repeating.
Investing in a bull market is like swimming with the tide. Guided by the strength of the current, your strokes lead you to your intended destination with ease. The 2021 bull market took things to the next level, as investors surfed tidal waves 20 feet high. A purchase of Bitcoin BTC/USD Ethereum ETH/USD and Solana SOL/USD made on Jan. 1, 2021, resulted in 120%, 227% and 1,350% returns, respectively, by April 15 of the same year.
Imagine the psychological conditioning one developed as a new crypto investor in 2021. The values that have been proven to be wealth generators in markets — discipline, patience, risk management and knowledge — were all seemingly tossed out of the window. Abandoning these prudent principles may be covered up in a bull market, but in bear markets, they shine like diamonds in a field of coal.
As discussed in a previous post, bear markets may provide the opportunity for bargain-picking certain assets, both traditional and digital, but they must be approached differently to bull markets.
Here’s how to stay on the right course.
First on the Bear Market Survival Guide is self-reflection.
No one can tell you what kind of drop in your portfolio you can handle, or what your relationship to risk is. Investors sit on different ends of the risk-tolerance spectrum, and it’s your obligation to know where you lie.
This is particularly important in bear markets, as portfolios decline and paper losses materialize. Knowing your personal risk tolerance helps you avoid catastrophic behavioral impulses like panic selling or, on the other end of the spectrum, aggressive buying.
Consider the following examples as reflections of the catastrophic nature of both behaviors:
- As discussed in a previous article, panic selling an investment in the SPDR S&P 500 ETF SPY at the end of 2009 would have yielded a 57% loss on an investor’s portfolio (assuming they had made their purchase at 2007’s top).
- If held until the peak of 2022, this loss would’ve been a 450% gain. Starting at $100,000, panic selling in 2009 would have yielded a portfolio value of $43,000, while holding until 2022 would have yielded a portfolio value of $450,000.
- Similarly, aggressively buying risky crypto coins like Shiba Inu SHIB/USD in February 2022 would have yielded a nearly 80% drop in value by June. In four months, a $100,000 investment would have dropped to $20,000.
Aggressively buying risky investments may have yielded spectacular results in the midst of a bull market, but in a bear market, it could mark the end of your investing career.
The first step to preventing that outcome is knowing your risk tolerance. The second is considering that you are in a bear market and that behaviors that worked before may not work now.
Let The Professionals Guide You
Self-awareness and self-control are keys to success in the investing field, but that doesn’t mean you have to develop these skills on your own.
By enlisting help from experienced professionals, traders can shorten the learning curve required to adopt a psychological edge in the market. For Caleb & Brown, providing investors with the tools and knowledge to make sound decisions in bear markets is a fundamental business pursuit.
As the world’s leading cryptocurrency brokerage, Caleb & Brown offers personalized broking services to each of its crypto investors, covering all matters of questions and concerns through its communication efforts. With Caleb & Brown, investors can expect open conversations with their brokers whenever and wherever they’re needed.
Interested in learning more about the best way to survive a bear market? Check out the previous article in this series here.
Featured photo by Mark Fletcher-Brown on Unsplash
This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investing advice.
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