Bear Market Overview: Top-5 Things to Do During a Bear Market

Hello Xillion Community!

In this new video and article from Learn2Earn DAO, we will be briefly discussing the current state of the market, and what the Bear Market generally means for participants of the Crypto ecosystem. At the moment, the Global Financial markets, and along with them, the Crypto market are going through a downward (Bear) market.

What is a Bear Market?

A bear market is defined by a prolonged drop in investment prices. Generally, a bear market happens when the broad market index falls by 20% or more from its most recent high. There can be down markets for a market as a whole, as well as for individual stocks.

Bear markets are characterized by investors’ pessimism and low confidence. During a bear market, investors often seem to ignore any good news and continue selling quickly, pushing prices even lower. Herd behavior, fear, and a rush to protect downside losses can also lead to prolonged periods of depressed asset prices. Down markets can be cyclical or longer-term. The former lasts for several weeks or a couple of months, and the latter can last for several years or even decades.

The causes of a bear market often vary, but in general, a weak or slowing or sluggish economy, bursting market bubbles, pandemics, wars, geopolitical crises, and drastic paradigm shifts in the economy such as shifting to online economy, are all factors that might cause a bear market. The signs of a weak or slowing economy are typically low employment, low disposable income, weak productivity, and a drop in business profits. In addition, any intervention by the government in the economy can also trigger a bear market.

Top-5 Things To Do in Bear Market:

It is important to note that the activities done in a Bear Market should reflect a long term investment approach, and drastic moves which could disrupt a portfolio’s recovery in a downturn should be refrained from being done.

1. Utilize Dollar Cost Averaging

It is important to keep in mind during an economic slowdown that it’s normal for the market to have negative years, and is part of the business cycle. You can apply dollar cost averaging (DCA) by purchasing assets regardless of price, where you end up buying assets at a low price when the market is down. Over the long run, your cost will "average down," leaving you with a better overall entry price for your assets.

2. Diversify Portfolio

Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. A diversified portfolio contains a mix of distinct asset types and investment vehicles in an attempt at limiting exposure to any single asset or risk.

Diversification can also be achieved by buying investments in different countries, industries, sizes of companies, or term lengths for income-generating investments.
It is most often measured by analyzing the correlation coefficient of pairs of assets. The major benefit to this strategy only applies if the securities in the portfolio are not perfectly correlated—that is, they respond differently to market influences.

3. Research The Market

One of the most underlooked aspects of Bear Markets are the opportunities it creates for learning the macro market cycles from a hands-on approach. It is important to remain vigilant of news from trusted sources and publications. A focus should be put on having a proper understanding of the projects which you are invested in, as well as an approach of remaining invested into the projects with strong fundamentals.

Educational and Market Segment Focused DAOs are a great way to join fundamentally sound ecosystems of strong projects, and allows for exposure to a diverse range of products and utility.

4. What *Projects* Should Be Doing:

Picking only one “perfect” strategy and never changing it is quite difficult, and an almost impossible task during this kind of market. However, there are a few strategies and approaches which projects and their teams can apply to better navigate a bear market:

  • Double down your investments on the product(s) to provide users with the best possible experience.
  • Constantly add utility to the token to make it essential for using the product. Then, when your token is an essential part of the platform and the platform is growing its user base, it will drive the demand for the token.
  • Use only cost-efficient marketing channels. (Focus on cost-effective user acquisition)

5. Time to Become a VC and Consider Small/Young Startups With a Good Product

Generally, a Bear Market is the perfect time for VCs or any individuals who want to attempt venture capital because of the discounted prices for many potentially brilliant assets. The only thing you need to figure out is the correct entry point, and making sure you have enough patience as the important ingredient for the success of your investments. Sometimes it takes up to 1-2 years to get a profit during a bear market, so don’t sell it too early if you believe in a product.

If you picked correct projects and they make it through the bear market, then you will have the chance to be an investor of the “next Binance” or something like that, because the most successful companies were built off of a lack of resources and market clarity at the time of their inception, which ties back to the need for a dependable and experienced team.

So, these are the most strategic methods of navigating through a Bear Market, and making sure that you are well positioned to hedge against any additional loss. It is important to note that every investment method creates a different outcome for every individual experience, and therefore important to not rush the process.

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Xillion.one - a fully-fledged ecosystem for DAOs. All of the essential tools for building a successful DAO included in one convenient and easy-to-use platform.