3 Ways to Trade Bitcoin and Altcoins During a Bear Market
Markets are scary right now, and while the situation is likely to worsen, that doesn’t mean investors need to sit and watch from the sidelines. In fact, history has shown that one of the best times to buy Bitcoin (BTC) is when nobody is talking about Bitcoin.
Do you remember the crypto winter 2018-2020? I do. Hardly anyone, including the mainstream media, talked about crypto in a positive or negative way. It was during this time of prolonged downtrend and prolonged sideways notch that smart investors accumulated in preparation for the next bull trend.
Of course, no one knew “when” this parabolic progress would take place, but the example is solely intended to illustrate that crypto may be in a crab market, but there are still good strategies for investing in Bitcoin.
Let’s take a look at three.
Accumulation via dollar cost averaging
It is useful to be price agnostic when it comes to investing in assets for the long term. A price agnostic investor is immune to fluctuations in value and will identify a few assets that they believe in and continue to add to the positions. If the project has good fundamentals, a strong, active use case, and a healthy network, it makes more sense to just get into a dollar-cost-averaging (DCA) position.
For example, take this chart from DCA.BTC.
Investors who automatically bought $50 in BTC weekly over a two-year period are still in profit today, and with DCA there is no need to make trades, view charts, or put yourself through the emotional stress associated with trading.
Trade the trend and walk far away from extreme lows
Barring stable, reasonably sized dollar cost averaging, investors should build a war chest of dry powder and just sit on their hands and wait for generational buying opportunities. Entering the market when it is deeply oversold and all metrics are in extremes is usually a good place to open spot longs, but with less than 20% of one’s dry powder.
When assets and price indicators are two or more standard deviations away from the norm, it is time to start looking around. Some traders zoom out to a three-day or weekly time frame to see when assets correct to higher time frame support levels or previous record highs as a sign to invest.
Others are looking for price to turn key moving averages such as the 118 DMA, 200 WMA and 200 DMA back into support. Chain fanatics usually follow the Puell Multiple, MVRV Score, Bitcoin Pi indicator or Realized Price indicator to see when extreme multi-year lows are hit as a sign of when to buy.
Regardless, opening spot lengths during extreme selloffs usually prove to be a good swing trade or even entry point for a multi-year position.
Related: Wen moon? Probably Not Soon: Why Bitcoin Traders Should Be Friends with the Trend
Do nothing until the trend changes
Trading during a bear market is difficult, and capital and portfolio preservation are top priorities. For this reason, it is best for some investors to simply wait for confirmation of a trend change. As the saying goes, “the trend is your friend.” Everyone is a genius and a great trader during a bull market, so if that was you, wait until the next bull trend rolls around and be a happy genius then.
Downtrends, consolidations and bear markets are notorious for cutting out traders and reducing one’s portfolio size, so it is unwise to trade against the trend unless one has a PNL positive method of trading during bear trends and some skill in shorting.
For crypto investors, it is important not to live in a vacuum and to keep an eye on the stock markets. Crypto traders tend to focus only on crypto markets and this is a mistake because the stock markets and BTC and Ether (ETH) prices have shown a strong correlation over the past two years. In one’s charting suite, it would be wise to keep the S&P 500, Dow Jones or Nasdaq charts up alongside BTC’s or ETH’s daily chart.
In the latest trend reversal, BTC’s price action was the canary in the coal mine that began to chirp higher and higher as the US Federal Reserve reinforced its intention to raise interest rates. It is easy to be misled by the minimal movements that occur in Bitcoin’s four-hourly and daily price charts, and one can easily be lured into some hefty positions based on the belief that BTC is on the verge of a reversal.
Keeping an eye on the market structure and price action of the major stock indices will provide crucial insight into the strength and duration of any bullish or bearish trend that Bitcoin may be exhibiting.
This newsletter was written by Big Smokey, the author of The Humble Pontificator Substack and resident newsletter writer at Cointelegraph. Every Friday, Big Smokey will write market insights, trending how-tos, analysis and early research on potential new trends within the crypto market.
Disclaimer. Cointelegraph does not endorse any content of the product on this page. While we aim to provide you with all important information we can obtain, readers should do their own research before taking any action related to the company and bear full responsibility for their decisions, nor can this article be considered investment advice.
