Bear markets are strange beasts while they do present unique opportunities for the astute amongst us they're also fraught with risks that otherwise wouldn't exist risks, that could get you even more wrecked when placing the wrong bet.
Today I'm going to take you through 10 of the biggest mistakes that you can make in these treacherous market conditions your portfolio will be begging you not to miss this one.
There be bears in their woods so going further without a disclaimer wouldn't be good. If financial advice is what you're looking to find then put that thought right out of your mind allow me to make it crystal clear you won't find that sort of stuff around here entertainment and education are what's you will only find, so if that ain't up your street then be on your way now here we give you all you need to know with a dose of reality. If hype and shilling is your idea of fun then there are plenty of other place to check out just not this one.
That's quite enough rhyming so it's about time I parked it and told you what mistakes to avoid making in this big bad bear market;
1. BUYING THE DIP
The first and biggest mistake you can make in a bear market is to try and time the market or buy the dip, now this is not something that's specific to crypto and it can be applied to nearly any market out there. When you're in a peak bull market, prices tend to follow the trend indeed you might have heard the expression the "trend is your friend" well that usually applies to the downside as well momentum is a powerful force in the markets and investor sentiment is hard to turn around when markets are trending lower, this has also been likened to catching falling knives although you think an asset may be undervalued the markets can keep dumping that said asset for much longer than you can stomach.
Something else that you have to be careful of is the dead cat bounce as the name suggests these are temporary market reversals that you think might indicate a turning of the tide but are really nothing more than a temporary upswing that can leave you wrecked when it runs out of steam, all these factors combined with all the hopium and fomo that tends to get flung around means that buying the bottom is incredibly hard to do.
Therefore if you really think that an asset is attractively priced and you would like to start accumulating it then you may want to consider a DCA or dollar cost average approach for those unfamiliar this is a tried and tested method of slowly accumulating an asset over time in small regular buys that average out the buy or sell price and smooth out the volatility I WILL BE TALKING ABOUT THESE IN ANOTHER POST SOMETIME SOON, but even if you think that you want to slowly buy into a cryptocurrency because it's cheap you have to be careful of making the next mistake.
2. Bull Market Pricing
Basing your valuation metrics on cryptocurrency prices that you experienced in the bull market for many 2020 and 2021 was the year you entered in to cryptocurrency, what this means is that you bought your first cryptocurrency while it was going through one of the strongest bull runs
3:54 to date hence your perception of a cryptocurrency's value is determined by your experience in that bull market just because a cryptocurrency is off its all-time highs by over 90 percent does not automatically mean that it is attractively priced, in fact there could be a strong chance that it's still overpriced that's because in bear markets people's expectation of returns on all asset classes are adjusted down considerably unlike stocks which have cash flows that apply to them crypto is more speculative and hence the price itself is based on near binary outcomes i.e either it has great long-term success or it fails. This is something that has also played out in past bear markets I recall back in the 2018 bear market there were some cryptocurrencies that were well off their peak and may have appeared cheap but never recovered for example we had the likes of iota, dash and bitcoin cash all reached their all-time highs around the end of 2017 but fell around 95 percent to their bear market lows though this may have looked like a bargain at the time. The sad reality is that they have never recovered if you had bought these coins based on historical assumptions of their value you would have missed out on some of the largest gains in other altcoins in 2020 and 2021.
Thus it's fair to say that some of those hot altcoins that reach dizzying highs during this most recent bull run have seen their best days even if they do manage to recover those gains, it may not be anytime soon.
Now this actually ties into the broader question of expectations for this market and the next bear market mistake you can make.
3. Unrealistic Expectations
you have to adjust your expectations for this market returns of 100 or even 10x in these conditions are going to be hard to come by the sooner that you realize that the less likely you are to fomo into the next hot altcoin that's pushed onto the market it's sub-optimal from an investing perspective because if your expectations are that a particular altcoin will rally by many multiples you could over extend yourself, it could lead to you making some well-known trading mistakes. This mistakes I will be covering in another blog post.
Now unrealistic expectations also lead to bad budgeting during times like these having all your funds in an alternative asset class like crypto in the hope of hypnotic gains is not a safe way to play it. It's essential to have an adequate buffer to hold you over for the rest of the bear market, I'll also add that the bear market we're entering more on that in a bit is likely different from those of the past it's a bear market that's going to coincide with the most chaotic geopolitical and economic climate that we've seen in many many years all the more reason to make sure that you have enough funds to support yourself outside of the crypto space, moreover apart from the perspective of investing decisions, unrealistic expectations about potential returns are not happy from a mental perspective either placing your faith in the potential of a coin to pull bull market moves in a bear market is going to leave you frustrated and dejected for my own peace of mind I generally prefer to have low expectations about returns in a bear market.
4. Being Too Heavy in Alts Coin
when it comes to asset allocation in a bear market you need to completely rethink the weightings of your portfolio that's because in bear markets participants tend to gravitate away from alts. If you've been following the trend recently, you'll notice that when we entered this bear market institutional investors where quite heavy in btc and eth, this is mainly because in times of market stress investors tend to gravitate away from the high risk high return investments into more established blue chip assets and this is not something exclusive to crypto either, it plays out in the trendify markets as well. Sometimes investors will move into blue chip stocks and sometimes they move away from stocks entirely and into bonds etc.
If you are going to be investing in crypto you need to seriously consider being top heavy in these blue chips. We are quite far from any alt season and
holding out hope for one in a bear market is ambitious to say the least there's historical precedent for this if you take a look at previous bear markets during these periods bitcoin dominance shot up that's basically because it performed better than alts across the board. You can also take a look at the bitcoin price of some of your favorite alts during these periods relative to btc they have been on the decline and this includes eth of course.
we also cannot ignore historical data as we've endured past crypto bear markets and those periods can be instructive now having said that you also can't view past bear markets as scripture when it comes to how this one is likely to play out which is funnily enough the next mistake on my list, while this bear market is likely to share a lot of the characteristics that we've seen in previous ones it's also happening against a completely different global macro backdrop.
5. Past Performance
The two most recent crypto bear markets were from November 2013 to January 2015 and from December 2017 to January 2020 they were mostly caused by factors specific to the crypto market hype that reached fever pitch followed by painful periods of consolidation. However during those times the macro environment was relatively stable in the 2013 bear market the fed's fund rate was near zero and in the 2018 bear market the rate reached a max of 2.4 percent before the fed started bringing it down towards the tail end of 2019.
On top of this inflation was low and stable there wasn't a war in Europe and corona was a beer things are a lot different today the fed is heading into a hard rate hiking cycle that has already started driving capital away from risk on assets and into treasuries and the like the consensus estimate for the fed's fund rate at the end of the year is 2.5 percent however there are many who think that even this will be too low to curb inflation.
The point is that we are rushing into a rate-tightening environment the likes of which we haven't seen for decades.
this is at a time of high inflation meaning we're likely due a period of the dreaded stagflation, these are market conditions which crypto has never experienced the most recent global recession was back in 2008 and that was before bitcoin was even launched, so all I'm trying to say here is that you shouldn't view the past as fully indicative of future returns.
Now, this comes not only from the potential performance of cryptocurrencies but also the length of this bear market. Some think that it could last as little as a year, others think that it could extend all the way out until the next bitcoin halving.
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