Bear markets are unavoidable. However, it’s difficult to predict them, how long they’ll last, or how much they’ll affect cryptocurrency prices. Bear markets are a regular part of market cycles, so you can not only withstand them, but also position yourself to profit from them.
The strategies mentioned below will help you reduce your portfolio losses or even profit from the bear market.
What Is a Bear Market and How Does It Work?
A bear market occurs when the prices of shares fall rapidly, and a widespread pessimistic outlook causes the sentiment to deepen.
So, what can we do to mitigate our losses and maybe even benefit in a bear market? Here are four ways to get through the next bear market:
The Crypto Crash
One takeaway from the 2018 bear market is that if you buy cryptocurrencies at regular intervals during a crypto crash, you will profit when the market eventually recovers.
Buying Short- & Long-Term Puts
If you believe a bear market is forming and you have significant long positions in the market, buying cheap short and long-term puts on the major indices is another effective strategy. Keep in mind that trading futures often require margin, which can necessitate special access privileges for your exchange account.
Selling Naked Puts
In order to sell a naked put, you must sell the puts that others want to purchase in return for cash premiums. There should be no shortage of willing investors in a bear market.
When selling a put, the aim is for the put to expire worthless at or above the strike price. If it does, you benefit because you hold the entire premium, and the transaction is complete. However, if the price of the cryptocurrency falls below the strike price and the put holder exercises the option, you will be forced to take delivery of the cryptocurrency at a loss.
Identifying Assets That Appreciate in Value
It’s useful to look back at previous bear markets to see which cryptocurrency, sectors, or assets eventually rose in value (or at least held their own when all around them the market was tanking).
Conclusion
As you can see, we don’t have to be afraid of a bear market; instead, by using certain alternate strategies, we can do very well as periods when many others are experiencing significant declines in their portfolios.
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