The cryptocurrency market is known for its wild volatility. Ever since the first cryptocurrency, Bitcoin, was created, Investors or traders who buy Bitcoin have witnessed and learned how volatile the crypto market can be. Unfortunately, some had to learn the hard way. However, the extreme volatility of cryptocurrency that makes it risky equally makes it very rewarding. Profit and loss are two sides of the same coin when it comes to cryptocurrency investing.
Over the years, two trends can be observed in the crypto market – the upward market movement that occurs when there is a rise in crypto prices and the downward market movement that occurs when there is a dip in market prices. Two prominent terms have been used to describe these behaviours – “Bull” and “Bear”.
The bull and bear trends have constantly replaced each other and it has proven to be quite difficult to predict or prevent them. This doesn’t however mean predictions can’t be done. While both terms are used to describe the behaviour and performance of the crypto market, they are entirely different with each presenting its own set of potentials and pitfalls.
The bear market is one of the best times to generate profits in cryptocurrency. The period offers tremendous opportunities to make money and potentially increase the value of one’s portfolio. However, this requires the ability to take advantage of the market situation.
Let’s delve into how to buy bitcoin South Africa and make money even when there is a market downtrend.
You can also find out what Bitcoin price charts tell traders and how the charts are used to predict the market.
What is a bear market?
It is quite unfortunate that the term “Bear market” is dreaded by many investors. However, these market downtrends are inevitable and are most difficult to predict. Bear markets if properly analyzed can potentially lead to an upturn in fortune for investors and traders alike.
A bearish market is one in which the market is experiencing a massive decline in prices. It refers to a situation where the market is experiencing a significant decrease in prices over a long period. The ‘Bear’ term is widely used in the traditional financial markets. Cryptocurrency markets are more volatile in comparison with traditional markets. Therefore, it is often common to witness a lengthy and stronger bear period in crypto where prices of assets can drop as low as 85% of value.
How can you make money in the bear market?
Bear markets can be really difficult to trade. The general pessimistic outlook of the market and the dwindling prices make it a bad time for investors. However, the bear market also presents its own set of opportunities to be profitable. These opportunities are out there for everyone. However, the advantage can only be taken by those who can spot the right time and use the right tools.
Below are ways to make a profit during a bear run:
● Shorting (Futures Trading)
Shorting is also known as short selling. This is when predictions are done on the decline of a particular asset. It is effectively the opposite of when an investor chooses to buy bitcoin or any altcoins and hoping for the price to increase. When you “short” a crypto, you are essentially making a bet that the price of the cryptocurrency will fall below the price at which you entered your short position.
To short sell, you’ll borrow a certain amount of bitcoin or any altcoin from a broker or any other lender. You’ll then sell the BTC at the current price hoping that the price of the asset will fall in the future. If the prediction turns out to be correct and there is a fall in price, you will then proceed to repurchase bitcoin or altcoins (the same volume of the asset) at the lower price and return the borrowed amount.
Simply put, you borrow & sell when it’s high and buy back when it’s low thus, making a profit on the difference. This is referred to as “Futures Trading.” The most desirable situation in a short sale is the one in which you enter the trade at a high price, and cover the short position at a low price. Shorting is a powerful technique if utilized properly especially when facing an extended downturn in the market.
● Put Options
The Put option is a very powerful contract that allows for market speculation. It is a contract that allows traders to speculate on a future price dip of an asset. It gives the owner the power to sell the asset at a predetermined price (strike price) within a certain period (expiration).
The profitability of a put option increases the more the value of the asset trades below the strike price. For example, if the value of 1 BTC is $50,000 in May but you think the value will drop by $5,000 by June end. You can buy BTC put options at a strike price of $45,000 (depending on your prediction) for a premium of 0.02 per contract at an expiration date of June 30th. If the bitcoin price then drops below your strike price, you can then exercise the right to sell the put option for a profit.
The major difference between put options and futures is that ‘futures’ is obligatory, while ‘a put option’ is optional. For example, if you buy BTC put option contract from an exchange, you pay a premium to sell bitcoin at a certain price on a certain date. If the price on that date is not favorable, you don’t have to take any action as the contract will just expire. While with futures, you will need to complete the transaction and finalize the settlement at the expiry date.
● Swing Trading
Swing trading is a form of trading that focuses on short to medium-term market swings. It takes advantage of price trends that happen over a few days to weeks without considering the larger macro-trend. Swing traders make use of different approaches to study the micro-trends to confirm the swing. With a confirmed upward or downward market swing, traders can make trade accordingly to make money off the micro-trend. Essentially, with swing trading, traders can buy bitcoin south africa at a low price and sell high during a bear market.
Even when the overall market is trending downward, there are still a lot of opportunities to make profits. The major thing is the ability to spot when the market is starting to fall. Also the ability to use the right tools and strategies to take full advantage of the trend. However, the bear market has proven quite difficult to spot out and it might take much time before it becomes obvious. Nevertheless, using a combination of advanced indicators and technical analysis has proven to be useful in detecting its’ start. Once you notice the market is in bear mode, shorting, put options, and swing trading are some of the strategies you can use to take advantage of the market.