16 November 2022 | ZebPay Trade-Desk
Bear markets can be difficult times for investors, who are often faced with declining values of a majority of their holdings along with dwindling opportunities for profit. For some, the bear markets are troubling times that threaten to recoup all those returns achieved over the past few months, while for others it presents a plethora of opportunities that few with a risk appetite can capitalize on.
Whatever your perspective is, one thing is certain: acting irrationally and failing to adequately mitigate risk can have catastrophic consequences. Therefore, it’s a good idea to take some time to understand how to protect yourself in a bear market, whether it’s from external threats, unknown risks, or even making bad decisions ourselves.
How to Analyse your Portfolio
We all probably have a few assets in our portfolios that have little chance of returning to their former glory. However, you hold on to them because you don’t want to lock in your losses or because you’re still waiting for the chance that they’ll take off. Unfortunately, these are assets that trade well above their intrinsic value, rarely doing so for long. This is often seen when stocks trade well above their P/E for some time before returning to more reasonable levels, and when fundamentally weak crypto assets lose their enthusiasm and selling pressure begins to mount.
With that in mind, it’s always a good idea to define an exit strategy for each asset you own and, if necessary, cut your losses as quickly as possible. You may want to automatically enforce your exit strategy by placing your limit sell orders just below key support points or simply selling in the market where liquidity allows. Selling at a loss can hurt, but keeping the assets you hold for losing, in the long run, can result in potentially devastating losses. You should be aware of the “selling effect,” which causes investors to hold assets when they know there is essentially no chance of recovery and sell assets with greater upside potential early to take profits. Without being too hasty, it’s a good ability to get out of losing positions early without getting too committed.
During a bull market, well-publicized crypto assets tend to command extraordinary market valuations, often dramatically exceeding their intrinsic value. Not surprisingly, this value typically plummets in a bear market, as crypto assets are far from their intrinsic value and begin to see their prices fall. The delta between the current market cap (calculated as token price * current supply) and fully diluted valuation (calculated as token price * total supply) is generally reduced over time as a larger proportion of the token pool is unlocked. If there is a big difference between market cap and FDV, this can be a red flag.
Best Practices for Getting Better at Investing
One of the best ways to improve your investing and trading performance is simply to become more educated. In practice, this means tapping into the right data sources and using the right tools to extract useful information. After all, a well-informed trader is often successful, doubly so in a bear market where consequences are exaggerated. Luckily, there is a wealth of information available to help you not only stay on top of the market but also gain insights that other people don’t see. From the dozens of analytical platforms available to the vast amount of research material available, it is now possible to be well-informed about most projects, markets and trends.
At ZebPay, we offer a wide range of tools and resources that you can use to keep up to date with new opportunities and monitor your favourite tokens. For example, you can:
- Create a portfolio and monitor your favourite crypto assets.
- Stay up to date with the best and worst crypto assets over the last 24 hours, 7 days or 30 days.
- Set alerts and monitor your investments.
- Check out our blogs to get more updates and information regarding the market and other aspects of the crypto industry.
For those who want to take a more data-intensive approach to their investment strategy, several platforms offer analytics and chain tracking. Many have a free plan (or at least a free trial) that can be used to spot trends early and identify entry/exit points and potential red flags.
Crypto has the potential to generate amazing profits or heartbreaking losses. As with any investment strategy, your goal is to ensure that your gains outweigh your losses. Diversification is one of the best ways to do this. Rather than putting all your eggs in one basket and hoping a single coin/token will go parabolic, it’s safer to hedge your bets by spreading your money across a variety of uncorrelated assets. Unfortunately, this is not so easy when it comes to crypto the majority of crypto assets follow bitcoin’s lead when it comes to price movements.
However, you can potentially reduce category risks by diversifying your investments across a variety of different sectors, for example, Defi, L1 coins, L2 solutions, governance tokens, metaverse assets, etc. With a diversified pool of assets, you can help your portfolio better absorb losses while gaining access to potential growth in a variety of uncorrelated sectors.
Some also decide to utilise a variety of investment methods and modalities to mitigate risk. For example, use derivatives to hedge risk on spot positions during periods of extreme volatility, or spread investments across a variety of platforms to mitigate risk from Black Swan events such as hacks, downtime, or exploits. The inversion landscape is becoming increasingly complex, and the number of potential attack vectors is increasing. It would be wise to take protective measures if your position is exposed to such risks.
How to Shield Yourself from False Information
Unfortunately, the crypto industry is full of self-proclaimed experts and scholars, many of whom genuinely believe they can predict the future and ensure their audience thinks the same. But while some are ethical and thoroughly discuss their limitations and fallibility, others have developed a seemingly cult following that buys essentially anything they promote with little to no additional research. Additionally, many influencers are paid simply to promote the next meme coin money or half-baked project and rarely make it clear that they are on the payroll. Under the popular slogan “it’s not financial consulting (N.F.A.)”.
Many influencers praise specific projects in front of an often naïve and impressionable audience, many of whom buy and hope for the best. Not surprisingly, these users often get burned and most end up losing money. Remember, everyone’s an expert in a bull market. At the height of hysteria, it’s often hard to go wrong with a crypto investment. Because of this, you must take the time to do your research (DYOR), which means using primary data sources, data providers, and other analytics systems that you think can help you to gain an advantage.
Disclaimer: This report is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. All investors should consider such factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. The Company has prepared this report based on information available to it, including information derived from public sources that have not been independently verified. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed herein. This report is preliminary and subject to change; the Company undertakes no obligation to update or revise the reports to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. Trading & Investments in crypto assets viz. Bitcoin, Bitcoin Cash, Ethereum etc. are very speculative and are subject to market risks. The analysis by Author is for informational purposes only and should not be treated as investment advice.