Crypto Market Collapse: Bear Market Investing Guide

Crypto market
Source : Baby Berlin

Let’s face it, it always seems like the market’s about to crash. Then one faithful day, it starts, and things begin to crumble. I mean, crypto’s down, stocks are down, and everyone’s getting a little bit agitated. With this, we have good news, and we have bad news. The bad news is, we don’t know how long this is going to last. The good news is, that this is the time when investors make decisions that turn them rich.

In 2001, Amazon’s stock tanked 93%. Buying then would have netted you a 400 X return today. Stocks are up 73% since the pandemic crash. Today, Warren Buffett has finally begun spending his cash, a sign that value opportunities are just beginning to pop up. So now is the time to ask yourself, do I want to sit on the sidelines, or do I want to try to make the most of this bear market? All right, well, if you’re still reading, let’s go ahead and jump in.

Why 2022 will be a disastrous year for investments

Before we get into money-making strategies, we need to understand why so many people predict that 2022 will be a disastrous year for investments. First, we’re a little past due. Crypto has had major ups and downs in the last decade, but stocks have basically been climbing for about twelve years. So a correction is probably overdue, and this is normal.

Bear markets are part of the system. They come along regularly, and if you’re going to invest money, you’re going to be hit by one of these declines sooner or later. But the biggest factor contributing to crap markets this year is uncertainty. People hate uncertainty. This is why you’d rather your crush tell you to just F off instead of stringing you along, making you question yourself while calculating the appropriate emoji usage. Just think about it.

Inflation chart

We have so much uncertainty right now. printed in a 22-month period. Inflation at 40-year highs. Supply chains took a dukey in 2020, never fully healed, then turned into dukey 2.0 thanks to a war going on. One of the largest cryptocurrencies completely crashed and home prices have never been higher. So, yes, things aren’t very certain. And it doesn’t help that the news loves this stuff. They make the most money when there’s chaos, and we just absolutely eat it up every single time.

So we need to rewire our minds a bit within a bear market. I like to remind myself that there’s really only one thing I can be certain of, uncertainty. I can’t predict or control massive economic forces like inflation, or even more importantly, Elon Tweets. So instead, I focus on what I can control, my personal investment decisions. This is why the psychology of investing is so insanely important.

You could look at Netflix stock right now and think, wow, Netflix must suck. I’m never going to invest in them. Or you might look at it like it’s one of the largest media giants in the world that’s slightly shifting focus to be more profitable, causing it to temporarily sell at a severe discount. The same goes with Bitcoin, down more than 50% from all-time highs. When Bitcoin was at $69,000. everyone wished they picked some up at $30K. Well, here’s the $30k you ordered.

So how are you going to look at this market?

The cycle that leads to frenzied buying and even crazier selling has been well known since at least the 19th century. Yet investors still go through the same old cycle of optimism, over investing, fear, and finally, panic. Still sounds like we’re talking about a crush, but let’s break that cycle in 2022. The number one way to calm down investment panic in your brain is the R-word – Research.

Research is to invest what exercise is to dating. If you’ve done it, you’ll be much more confident when push comes to shove. And afterward you can look back at your research notes that led you to go all in. This is an investment that is. And if nothing has fundamentally changed, you can feel confident in your choices and possibly even buy more.

Warren Buffett had a mentor named Benjamin Graham, again for investing, not for dating. Buffett actually had no problems with the ladies. Ask his wife or his girlfriend. Anyways, his mentor wrote a book called ‘The Intelligent Investor’. In that he tells us about this emotional, irrational character, again, not about dating, it’s for investing.

The Intelligent Investor

The character’s name was Mr. Market. Every day Mr. Market would shout at you what he thinks your investments are worth, only based on his emotions that day. Graham says in the short run, markets are a voting machine. In the long run, a weighing machine. This means, that in the short-run investment prices are dictated by Emotions.

In the long run, they are dictated by the value they produce. Value, production, and utility will always be worth something, no matter where the currency heads, no matter what’s going on in the economy. So we have our heads on straight now. What can we actually do during these times? The simplest tactic is to just take the bare head-on, not change course.

If you purchased $100 a week in Bitcoin or the Nasdaq, why stop now when prices are getting cheaper and cheaper if you still believe in those investments? And this isn’t just blind hope either.

Crypto market graph

A bear market usually doesn’t last as long as a Bull market and usually loses a lot less than is gained in the Bull market that comes after. The problem is, it doesn’t always feel that way. It feels like time slows down in a bear market, in a bad market. So if you’ve got nerves of steel and you can ignore stories of doom and gloom, just keep plodding along. It’s as simple as that.

Or you could do the complete opposite. Sell the whole lot, cut and run, go to cash. This is what the fund manager David Wright does, and he is someone who actually made it through previous bear markets with barely a scratch. He uses computer modeling to set trailing stop losses that automatically will sell positions into cash when markets begin to dip. Now, like dating, this is far easier said than done because it almost always feels like things are about to crash.

I vividly remember in 2018 people saying that the market has just got to crash somewhere soon. It’s way too hot. Well, look what they missed out on. Even that fund manager David, isn’t perfect. Yes, he has avoided crisis more than once. However, his fund tends to perform worse than his peers during strong markets. Or maybe you want to combine approaches.

You could sell off riskier investments in favor of defensive ones. These are investments that fare well even when the market starts throwing punches at you. Things like food, utilities, and health care all tend to do well in downturns because we simply still need them. Something interesting actually happens in rough economic times.

Bad companies tend to go out of business. Decent companies tend to stay the same or lose some ground. But great companies, actually get stronger in bad times because while everyone around them is failing, they get to pick up market share, growing larger and stronger. And this is the case for both stocks and cryptos. So now probably isn’t the best time to invest in meme coins.

In crypto, I’ve recently been testing out what’s called a dual investment bot. This is a way to profit when the market is in less than ideal conditions. I decided to test it. Pionex, is running a promo where they give you $1,200 to invest and the profit that you make is yours to keep. So why not go ahead and test it?

What this essentially is saying is I would like to buy some Bitcoin, but I’m not going to buy it in the open market since I know I can get paid if I wait. So in this example, you’re essentially saying I’m happy to buy Bitcoin at $27,000 if it indeed goes below $27,000. When the contract closes, I will receive Bitcoin at the $27,000 price plus the premium settlement fee, which in this case is 0.05%. That’s the one-day return.

If the price stays above $27,000, I will buy no Bitcoin and just receive the settlement fee in USDT. Then I can do it again and again and keep collecting fees until a contract settles. Now the reason for the settlement fee is I am taking on a little risk. So let’s say Bitcoin falls to $26,000 when the contract closes, that means I’m buying $26,000 Bitcoin for $27,000. So you’re not exactly losing money in that case, but you are getting a worse trade.

On the flip side of this, you can put up Bitcoin and earn a premium if you think Bitcoin won’t likely rise, perfect for a bad market. What this is essentially saying is I hold some Bitcoin and I’m okay with selling it at $30,000. However, I don’t really believe it will go to $30,000 in one day when the contract closes. If it does stay below 30, I will keep my Bitcoin and collect a nice 0.37% fee in one day, which is 200% annualized. If the contract settles above 30K, I will sell my Bitcoin for 30 and still collect that same fee.

The risk here is if Bitcoin goes to $31,000 or higher, I still need to sell it for 30. So this can be a great way to both hedge your portfolio and earn passive income. Now, this strategy can be as risky or as safe as you want it to be. So here’s an example of a very low-risk option, on this contract if Bitcoin increased 24% to $37,000 in four days, I would have to sell at that price and I would collect a nice 0.02% fee.

Now that fee is quite a bit lower than the last example because this one isn’t very likely to happen. The most likely outcome is Bitcoin stays under $37,000 for the next four days and I still get paid my fee. The closer the price and shorter the time frame and higher the risk and the more you can potentially make. If you’d like to try this out with that one $1200 trial fund, just click here and you can take these strategies and use them with stocks as well.

This is referred to as covered calls or covered puts, depending on what exactly you’re selling. But maybe you want to diversify instead, play the field and find investments that don’t move exactly with stocks or cryptos. This kind of sanctuary is totally possible, and it’s called a negative correlation.

Here’s an example. Stocks and oil have a negative correlation. More often than not, they trend in opposite directions, meaning when your stocks are down, oil is more likely to be up. However, that’s not always guaranteed. Now, commodities work against stocks as well, up to a point. Commodities tend to spike right at the beginning of panic before quickly calming down, which makes total sense if we think about the psychology of it.

Right at the beginning of a scary event is when people think most about gathering food, water, or other essentials. That’s essentially commodities no different than stores selling out of TP (toilet paper) in the pandemic. Now, some have said Bitcoin is a safe haven from stocks, but opinion is split wildly over this subject.

Crypto market graph

If we look at this chart, we can see Bitcoin in black appears to be fairly correlated with both stocks in red and bonds in green. Gold in yellow appears to have a negative correlation with the entire lot. This will be an interesting one to follow for the next decade or so. Will Bitcoin become less correlated to stocks as time passes and it gets more and more adoption? Only time will tell.

Now, there is one major problem with Bitcoin in bear markets and actually gold has the same issue. It doesn’t produce cash. This is what stocks and investment real estate really have going for them. In times of panic, a rational investor can always look to the cash that a business is generating and be comfortable with investing at lower prices because hey, I’m just going to get paid more cash per dollar I invest. This isn’t the case for Bitcoin or gold.

Sure they have a utility which means they have some value but it’s hard to argue if Bitcoin should be worth $30K or $100K. It’s pretty much the same argument for both prices. Given all, that’s going on in the world right now here’s what I’m doing to weather this bear market. I’m taking a look at my investments and I’m deciding which are strongest and which are weakest.

Now is not the time to invest in the weak. I’m utilizing market-neutral strategies like bots selling options and lending out stablecoins and I’m keeping my eyes peeled for once in a decade value investment opportunities. We’re talking about simple businesses that consistently produce cash and have a competitive moat that is very hard to beat.

Every little bit the market falls is just more opportunity for you and me to scoop up amazing deals. I bought in heavy in the pandemic dip and those were some of the best investments of my life. Now I’m curious what are your favorite investments right now? Let me know in the comments.

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