Tips For Investors In A Bear Market

Crypto market is falling

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The data shows that BTC fell below $26,000 and is now trading at $25,670. It is down more than 62% from its all-time high of $69,020 in November 2021.

With the broader market on the downside, all crypto indices have not performed well. The data shows that the current average daily income of Bitcoin miners has fallen by 56%, with the mining market still at a low level. Due to the unsatisfactory income of miners, the level of Bitcoin's hash rate has also been affected. With BTC’s hash rate falling by more than 10% in the past month, and the number of blocks generated per hour has decreased to 5.85 BTC. In addition, Glassnode data shows that the number of Ethereum loss-making addresses (7-day MA) reached 36,321,323.268, a new record high and the percentage of Ethereum profitable addresses (7d MA) fell to 55.667%, a record low in the past 22 months.

Pay attention to the impact of macro policies on the crypto market

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The plunge in cryptocurrencies is mainly due to macro policies. The Fed's FOMC meeting continues to release information that it will reduce the balance sheet to the outside world, causing US stocks and cryptocurrencies to plummet one after another. Data show that as the US inflation hit another 40 year high, a broader pullback happened in cryptocurrencies as a whole, with Ethereum falling 5% to its lowest level since March 2021 and Bitcoin falling below $26,000, a new low for more than one year. The US inflation data exceeded expectations and dashed hopes that price inflation might peak.

According to the analysis, even the Fed already "actually announced" that it will raise interest rates by 50 basis points in June, Fed Chairman Powell may still release an unexpected hawkish signal in the early hours of next Thursday. The May CPI data reinforced market expectations that the Fed would continue to raise rates by 50 basis points by September. Some investors have even bet that the Fed could raise rates sharply by 75 basis points if inflationary pressures do not cool down.

Pay attention to the behavior of the institutions and giant whales

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Despite the downturn in the crypto market and increased investor losses, 89 hedge funds participated in a survey conducted in the first quarter of 2022, according to PwC's fourth annual global crypto hedge fund report. Research shows that 38% of traditional hedge funds have invested in cryptocurrencies, up from 21% a year ago. In addition, two-thirds of entities surveyed currently investing in digital assets expect to increase their allocations by the end of 2022. Traditional hedge fund managers who do not participate in such investments fell to 62 percent from 79 percent last year. Meanwhile, 29 percent of those who haven't bought a digital asset are either in the process of developing an investment plan or are in the later stages of an investment plan. On the other hand, PwC's report notes that there are 300 estimated professional crypto hedge funds worldwide, adding that new entities have been created at an accelerated pace over the past two years. Bitcoin is the digital asset with the largest trading volume of crypto hedge funds, followed by Ethereum. This all shows that the financial institution market believes that crypto assets have greater potential for future development.

Great entry opportunity?

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The current bearish sentiment is likely to continue into next week. If you look back at previous bear markets, Bitcoin typically fell by more than 80%, and altcoins typically fell by more than 90%. The expectation of high interest rates due to high inflation triggered a decline in the crypto market, which, however, does not mean that the crypto market has entered winter. Now could be the perfect time to enter!

Renowned cryptocurrency analyst Benjamin Cowen has also shown confidence in the future of crypto. He commented on expectations for the performance of cryptocurrencies in the current bear market. A bear market will maximize the value of BTC for most investors. Cowen also believes that the current BTC market capitalization ratio of about 45.6% will increase to 60% later this year.

Quant recommendations in bear markets

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< 1 > Stay in the market.

In the past four years' bull-bear rotation, there has been a large increase every time there is a falling market. Taking the 2020 market as an example, Bitcoin has risen by about 6.7 times after halving its decline for one year. Only by continuously paying attention to the market can we turn over in the bull market after the end of the bear market.

<2> Balance risks and strategies reasonably.

In a bear market, some active combination strategies need to be used to ensure that a balance between risk and reward can be achieved under a certain risk. For example, stable assets and high-risk assets can be allocated at the same time, reducing losses while maximizing profits.

<3> A reasonable stop loss and correctly bottoming out.

The market changes quickly, and traders cannot accurately predict the next market situation, so it is necessary for Quant traders to grasp appropriate stop loss ratios when trading. If you want to go bottom fishing, you can use the regular quota to minimize your losses and make a profit in the future bull market.

<4> Focus on the late entry.

During a bear market, investors need to keep an eye on new projects, learn new trading techniques, and get more opportunities in a bull market when they enter the next round. For example, LINK, DOT, SOL and other coins in the previous bull market were born in the bear market.

Industry insiders who have long been involved in the cryptocurrency market believe that the market is cyclical, alternating between the two periods of frequent activity and "cryptocurrency winter". Although the cryptocurrency cycle may seem chaotic, it has grown steadily in terms of new ideas, code, projects, and entrepreneurial activities over the long term. The market has more potential for development in the future.

Author: Gate.io Quant Team
This article represents only the researcher's views and does not constitute investment suggestions.
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