The economy faces a bleaker outlook than a Welsh weather forecast, and few are rushing to buy risky assets. Here are some tips for dealing with adverse market conditions.
Option #1: Save money
There is no shame in staying away and saving some cash or stablecoins.
When the bullish momentum returns, you will have plenty of dry powder to make big allocations. In the meantime, there are still plenty of opportunities to earn yield in the crypto markets as long as you trust the protocol you are using.
But isn’t that timing the market, which is impossible? Maybe. But it’s more about spotting momentum and general market trends, as opposed to more targeted price targeting or call reversals. Big trends are easier to spot. However, if it’s a bit risky, there is another option.
Option 2: Average Dollar Cost (DCA)
Have you ever consulted a physiotherapist for a wrist or back problem? You hope for a quick and easy recovery, but instead you are given a meaningless and tedious sequence of exercises to do daily for three months.
Well, the cost average is the investment equivalent of that. It’s not sexy or even very interesting, but it’s very likely to work in your favor given a long enough time horizon. And these days there are automated bots that do that for you, which helps.
Related : 5 reasons why 2023 will be a tough year for global markets
These first two options could be combined to create a strategy. For example, putting 50% aside in stablecoins waiting for bullish momentum to return, and putting 50% in the market in a price independent manner. This tactic allows for some market exposure, which can help resist FOMO when the market rallies, even if your overall thesis remains bearish.
Option 3: Find outperforming assets
Decentralized perpetual exchanges have been the darlings of the bear market. Following the FTX scandal, traders flocked to decentralized options, shouting, “where can I short?” Many went to protocols such as GMX and ApeX, which grew by around 70% and 50% respectively this year.
There will always be assets that will outperform during bear markets, but finding them is hard work and going long during a downtrend is risky. This strategy should therefore be approached with caution and is best used by investors with the sense and experience to spot a good project and apply sound risk management.
Option #4: Use derivatives
There are many strategies using derivatives and combinations of contracts to secure profit in bearish and sideways markets. For example, using options to create a “bearish put spread” which allows you to make money when an asset goes down by locking in a good sell price at a reduced rate.
There are also neutral pseudo-delta strategies that advanced yield farmers use to buy and sell on both sides of a pool of cash. This reduces their exposure to the volatility of the assets they hold so they can collect fees from the pool while reducing their downside exposure.
The hard part is not so much applying these strategies – there are instructions readily available online – but managing them and sizing your position. Position management and sizing can make or break these types of trades. They can be profitable in a bear market, but should be used with caution.
Option #5: Keep a Cool Head While Others Lose Theirs
Unless you’re a free climber like Alex Honnald, you wouldn’t attempt to climb any type of cliff without good safety gear. The same goes for crypto investing.
What safety equipment? Well, an emergency fund kept in cash is a good place to start. It should cover approximately six months of basic living expenses and should not be used for yield, borrowed or staked.
Related: Bitcoin will rise in 2023 – but be careful what you wish for
You should also have a sinking fund, kept under similar circumstances (read: very liquid) to pay for big expenses that arise, such as car repairs or, say, getting stuck in dear Singapore for a week so that your outgoing visa is delayed. The sinking fund will give you that extra buffer of support so you can keep your emergency fund intact and use it only for true emergencies.
Finally, recessions are tough, so don’t forget to go take care of your mental health. If you’re worried about your wallet or constantly checking the price, you’re losing your health and reducing your chances of making good decisions when the time comes. So get out there, shut down the computer, and play.
Develop your life outside of your investing and trading activities. If you don’t, where will you go when you finally get there?
Nathan Thompson is Bybit’s Senior Technical Writer. He spent 10 years as a freelance journalist covering mostly Southeast Asia before turning to crypto during the COVID-19 shutdowns. He holds Joint Honors in Communication and Philosophy from Cardiff University.
This article is for general informational purposes and is not intended to be and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.