3 Ways to Trade Bitcoin and Altcoins During a Bear Market
The markets are scary right now, and while the situation is likely to get worse, that doesn’t mean investors need to sit back and watch from the sidelines. In fact, history has proven that one of the best times to buy Bitcoin (BTC) is when no one is talking about Bitcoin.
Do you remember the crypto winter 2018-2020? I do. Hardly anyone, including the mainstream media, has been talking about cryptocurrencies in a positive or negative way. During this time of an extended downtrend and long sideways chopping, smart investors have been piling up in preparation for the next bullish trend.
Of course, no one knows “when” this parabolic advance will happen, but the purpose of the example is to show that cryptocurrency may be in the crab market, but there are still great strategies for investing in Bitcoin.
Let’s look at three.
Accumulation by averaging cost in dollars
It pays to be unaware of prices when it comes to investing in assets for the long term. A price-neutral investor is immune to fluctuations in value and will select certain assets they believe in and continue to add to positions. If the project has good fundamentals, a strong and active use case and a healthy network, then it makes sense that only the dollar average cost (DCA) is set in the center.
Take for example this chart from DCA.BTC.
Investors who bought $50 in BTC per week for two years are still making a profit today, and with DCA, there is no need to make trades, watch charts, or subject themselves to the emotional stress associated with trading.
Trade the trend and get away from the lows and the extremes
Regardless of the average fixed dollar cost and reasonably sized, investors should build a war fund of dry powder and sit on their hands waiting for buying opportunities from generations. Typically entering the market when there is significant oversold and all metrics are very extreme is a good place to open spot longs but with less than 20% dry powder.
When price and asset indices are far from a standard deviation or more than normal, it’s time to start looking around. Some traders zoom out to a three-day or weekly time frame to see when an asset will correct to higher time frame support levels or previous all-time highs as a sign of investment.
Others are looking for price to reverse the major moving averages like 118 DMA, 200 WMA and 200 DMA once again to support it. Chain fanatics typically follow the Puell Multiple, MVRV, Bitcoin Pi or Price Realized Index to see when multi-year lows are reached as a sign of when to buy.
Either way, opening spot buys during heavy selling usually turn out to be a good swing trade or even the entry point for a long multi-year trade.
Related: One Moon? Maybe Not Soon: Why Bitcoin Traders Should Make Friends With This Trend
Do nothing until the direction changes
Trading during a bear market is difficult, and preserving capital and portfolios is the top priority. For this reason, some investors are better off waiting 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’s you, wait for the next bullish trend to roll around and become a happy genius.
Downtrends, consolidation and bear markets are notorious for cutting traders and reducing the size of their portfolio, so it is not wise to trade against the trend unless one has the positive PNL method of trading during downtrends and some skill in short selling.
For cryptocurrency investors, it is important not to live in a vacuum and monitor the stock markets. Cryptocurrency traders tend to focus only on the cryptocurrency markets, which is a mistake because the stock markets, Bitcoin and Ether (ETH) prices have shown a strong correlation in the past two years. In the set of charts one chooses, it would be wise to keep the S&P 500, Dow Jones or Nasdaq charts along with the daily BTC or ETH chart.
In the latest reversal of the trend, the BTC price action was the canary in the coal mine that started to tweet louder and louder as the US Federal Reserve amplified its intent to raise interest rates. It is easy to be misled by the insignificant moves occurring in the daily and daily four hour Bitcoin price charts, and one can easily be drawn into some huge positions based on the belief that BTC is about to reverse.
Watching the market structure and price action of the largest stock indices will provide crucial insight into the strength and duration of any upward or downward trend that Bitcoin may exhibit.
This newsletter was written by Big Smokey, author of The Humble Pontificator Substack and Cointelegraph’s resident newsletter author. Every Friday, Big Smokey will write market insights, guides, analysis and early research on potential emerging trends in the crypto market.
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