Just a few months ago, Bitcoin was at a record high and celebrities were pitching obscure cryptocurrencies. However, with Bitcoin prices cratering amid to around $36,000 from a record of nearly $68,000, and other digital tokens in freefall, one-time crypto fans are turning into skeptics and reassessing their tolerance for financial risk.
How to play a market dip is an age-old question: Do you hold tight, load up or flee in panic? Here’s what some crypto investors say is the best strategy for the long term.
Don’t try to short the market
While some investors may be tempted to short Bitcoin and other cryptocurrencies (i.e. bet that the price will continue to drop), experts advise against it. Such a strategy may do more harm than good.
“The time to short is likely over and would be an emotional decision based on the idea that the market is ‘going to zero,’” said Scott Melker, a crypto miner and investor who hosts the Spotify podcast, Wolf of All Streets, and is also the author of The Wolf Den newsletter. “The upside of buying now is exponential, the upside of shorting is extremely limited.”
Have a long-term perspective
Crypto has long been viewed as a digital goldmine, but like any asset, it has peaks and valleys. Viewing the market through a long-term lens instead may be helpful.
“The biggest successes in the [crypto] space were built when the markets were down, and I’ve never believed more in the long-term thesis being correct,” said John Wu, president of Ava Labs, a team that supports the development of the Avalanche public blockchain.
One cryptocurrency in particular, Bitcoin, has gone through cycles of plunging prices and dramatic rises. In fact, Bitcoin famously crashed in December 2017, falling to around $3,200 from $20,000 in just a few days, before rebounding.
To Wu, Bitcoin’s current price of $38,500 isn’t permanent.
“While a 50%+ drawdown seems significant in most markets, seasoned crypto investors call it ‘Tuesday,’” Melker told Fortune. “Bitcoin has seen a number of corrections of 50%+ and has always recovered and risen to new highs. People have a short memory, and seem to forget that Bitcoin dropped from $60,000 to $30,000 in 10 days last May. I expect a course correction and new highs down the road.”
Consider staking
In a bear market, investors can feel insecure because of the dwindling value of their assets, and they often look for ways to cushion their portfolio. In the crypto space, one way to increase your security and profit during a long-term hold is “staking.”
Staking, essentially, is locking away your crypto coins on a blockchain for a minimum amount of time to create passive income. Not unlike saving your money in a bank savings account, staking can allow you to maximize your money and earn a return. For example, on Binance, staking Ethereum can earn you up to 5.20% APY. Staking can take place through an exchange like Kraken or Coinbase, or via a software or hardware wallet.
“Staking is an excellent way to increase exposure to a platform or asset that you strongly believe in,” Avalanche president Wu told Fortune. “Return is more easily forecasted, often entirely known going into the activity, and far outperforms what individuals can expect from something like a high-yield bank account. There is risk in the underlying asset not growing in value, but I see staking as a very clear concept for both individuals and institutions to grasp as a way to steadily increase their holdings in networks they are bullish on both short-term and long-term.”
Crypto investor Melker both supports the concept of staking and acknowledges some associated risk.
“Staking is a great strategy for earning passive income and yield, akin to a high-interest savings account, which clearly does not exist anymore,” Melker told Fortune. “The caveat is that there is counterparty risk, because you are counting on the platform or protocol to survive high volatility. Do your research and decide where your coins are safest and only expose what you are willing to put at risk.”
Use dollar cost averaging to your advantage
Dollar-cost averaging is an investment strategy in which a buyer divides up a fixed amount to be invested, and then invests money in a specific asset (for example, a stock or a cryptocurrency) at regular intervals, whether the market is up or down. During the crypto bear market, this is a strategy you can employ to gradually grow your portfolio.
“Dollar-cost average is a sensible, time-tested approach to increasing exposure to an asset or asset class, without needing to ‘time the market,’” Wu told Fortune. “As we’ve seen over the last year, a down market can rapidly turn into a bull market, so steadily accruing is a great strategy for growing your portfolio at a pace you’re comfortable with.”
Melker seconds the opinion and adds that the current bear market is when the strategy is most advantageous.
“Dollar-cost averaging is agnostic to bull and bear markets. It’s a “forget about it” strategy that allows you to buy at every price, taking advantage of both dips and rips. The bear market is the best time to do it, but it should be actively happening regardless of price.”
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