5 common mistakes to avoid during a cryptocurrency bear market

5 common mistakes to avoid during a cryptocurrency bear market Cryptocurrency bear markets can be brutal for new investors without enough ex...

cryptocurrency bear market5 common mistakes to avoid during a cryptocurrency bear market

Cryptocurrency bear markets can be brutal for new investors without enough experience. The swings are often much more violent compared to traditional stock markets, and it is not uncommon for some currencies to lose 90% (or more) of their all-time highs.

Not having enough knowledge or experiencing a crypto bear market for the first time can lead investors to make a lot of mistakes. With that in mind, learning from people who have been around in previous cycles, as well as catching those mistakes early, can save you money and emotional roadblocks.

Below are some of the most common mistakes traders and investors make during a cryptocurrency bear market and how to avoid them.

panic comes out

Panic is universally bad. This is because when we panic, we experience an intense feeling of fear and anxiety, and it usually arises in response to an existing danger. When this happens, we are more likely to lose control and make reactionary decisions without common sense or logic.

In the realm of trading and investing, panic selling refers to the action of a cryptocurrency sell-off out of fear, rumor, or generally overreaction rather than rational and carefully planned analysis.

Investing in a cryptocurrency is an act that should be based on solid and objective merits, not on emotions. For example, Bitcoin is widely considered to be digital gold, a store of value, something that has historically appreciated in value over time. Many people invest in it with the intention of preserving the purchasing power of their funds, especially in times of high inflation when fiat currencies tend to depreciate faster. If this is the playbook, the main reason behind the investment, it is likely that I have a long-term preference, and the only reason to sell would be if something fundamentally changes in the narrative and Bitcoin does not fulfill its function.

However, what we see in practice is that many people start selling their BTC on the market when the price starts to drop. They forget (or fail to acknowledge in the first place) that BTC is also primarily considered a risky asset by many, and that is the general consensus, at least at the time of writing. Therefore, in times of economic turmoil, it is entirely possible for investors to liquidate BTC before liquidating other assets they deem safer. This drives the price down, sometimes more aggressively.

During these aggressive sales, many investors panicked. This is totally normal, but it's also probably the most common mistake.

Remember: no asset goes up in a straight line. There will be bumps along the way.

Yes, Bitcoin is much more volatile compared to, say, the S&P 500, but it has also risen in price historically. However, corrections are cruel and it is essential not to lose sight of the main reason why the investment was made in the first place.

marry your bags

While you should avoid panic selling, that also doesn't mean you should never sell. Realizing that you have made a bad investment and letting go of your ego is just as important. Many people "marry their bags," meaning they form an emotional attachment to the investment and give up reason and logic when the narrative behind it fails.

This is something that happened to many people in 2017 and 2018 when the ICO boom was at its peak. Many investors jumped in early, and made significant profits, but fell through in pursuit of even higher ROI. Later, when their cryptocurrencies began to fail, they did not sell because they were convinced of their recovery.

The fact is that many of the altcoins that have lost more than 90% of their value since the ATH are unlikely to ever reach these levels again. Don't be afraid to cut your losses and move on.

excessive trading

This also has a lot to do with the mishandling of emotions. Overtrading is usually the consequence of a few things: regret about misunderstanding an investment thesis, missing an opportunity, a strong desire to recoup previous losses, etc.

The only thing that all of the above have in common is that they encourage decision-making based on emotion. Remember, the market doesn't care about your emotions, charts are nothing more than a visual representation of information, and it's up to you to interpret that information. In all cases, however, this is a process based solely on objectivity, where emotions have no room to flourish.

There is also the fact that you pay additional trading fees when entering and exiting trades, and if you are not managing this correctly they can add up very quickly.

Trying to time the bottom

Trying to time the bottom is another common mistake that newcomers tend to make. It's a story as old as time: "BTC still has room to fall, so I buy it." And then one of two things happens:

1. Bitcoin falls, but they never buy, thinking (again) that they have more room to fall.

  1. Bitcoin never goes down, and they don't buy it thinking that "one last leg down" will eventually come.

But consider this. Imagine Bitcoin trading at $10,000 and you think it will drop to $8,000 in another 20% drop. You don't buy, and then Bitcoin goes into a parabolic run, hitting $100,000. Now ask yourself: was that 20% worth it?

During the COVID crash of March 2020, when BTC dipped below $4K, many people thought the worst was yet to come as the world teetered on the brink of economic disaster in the face of global lockdowns and an impending pandemic. . But that never happened; instead, BTC had a wild run, hitting $69,000 a year later.

The point is that no one knows where the market is going to go next, it is just educated and informed guesswork. So if you are not a professional trader, one of the best strategies you can use is dollar cost averaging (DCA). If DCA is going down, that's even better.

The idea is that you take the amount of money you want to invest and divide it into smaller batches that you invest regularly, say once every two weeks or once a month. This will get an average price across all tickets and minimize risk.

To learn more about the DCA strategy, read our detailed article on it.

Not paying attention to mental health

From all of the above, one thing should be clear: your mental health is paramount. No amount of money is worth sacrificing your well-being. Now that cryptocurrencies have made their way into mainstream investing a bit, it is important to mention this as more and more people start trading and investing in cryptocurrencies.

Pay attention to your mental health, don't neglect it. One of the easiest things you can do is invest for the long term if you are convinced that cryptocurrency is here to stay. If you believe that Bitcoin is digital gold and as such will replace traditional gold, why bother with a 10% increase or decrease in its price now?

If you think Ethereum will be a worldwide platform used by hundreds of thousands of developers and users around the world, does it matter if you bought it for $1,000 or $1,100?

During bear markets, prices tend to fall to extremes, and it is common for people to see their paper profits decline. If that's the case, don't forget that there is life outside of cryptocurrencies; It certainly hurts to lose life-changing money, but remember there is no value to your health that is worth it.

These are some of the most common mistakes that people tend to make during a bear market. None of the foregoing is financial advice. The purpose of this content is for entertainment and education only. Investing in cryptocurrencies carries a high risk of capital loss. You can lose everything you have invested. Therefore, never put in more money than you are willing to and you may lose.

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