Initially, 2021 seemed like crypto’s golden year. Following the huge economic upset caused by the pandemic, the appreciation of several digital assets kept growing during the “great panic,” as more and more people were seeking alternatives to fiat currency.
However, the positive trend was followed by a massive decrease in the price of most digital assets, including the king of the crypto industry – the one and only Bitcoin. Experts point out that the trend is not the end of the crypto saga, but they predict a potential bear market in 2022.
In this article, you will discover feasible solutions to protect your crypto profits from the next bear market. Also, you’re going to learn about methods that you can use to profit from a bearish market, such as options trading at Bitlevex, since you can call/put a wide myriad of cryptocurrencies.
What’s Causing the Negative Trends in the Crypto Market? – A Realistic Overview
Overall, the main problem affecting the crypto industry is not institutional credibility nor popularity among investors – it’s the US government.
The Biden administration is planning a set of proposed changes to the US tax code, including a plan to nearly double capital gains taxes to 39.6% for people earning more than $1 million (besides a certainly dangerous proposal of a tax on unrealized capital gains).
Such non-investor-friendly fiscal plans shook the crypto market, incentivizing profit-taking moves in equities and other risky assets, which strongly affected the hope of a solid economic recovery.
According to Jeffrey Halley, senior Asia-Pacific market analyst at OANDA, there was a severe impact on Bitcoin and other cryptocurrencies once President Biden signaled he wanted to raise the capital gains tax in the United States.
But while several social media outlets have uploaded posts about the plan hurting cryptocurrency gains, some traders and analysts say the decline is likely to be temporary.
According to Ruud Feltkamp, CEO of Cryptohopper, Biden’s imposed plans are unlikely to have a colossal impact on Bitcoin. In this sense, he says that as the world’s most valuable digital asset rose for a long time, it is natural to see a market correction period.
Is the Next Crypto Bear Market Coming Soon? – Anticipating Negative Market Trends
The bear market can be divided into different phases, each with its own peculiarities and different impacts on the cryptocurrency market.
First comes the recognition phase. Institutional investors are generally the quickest in the process of recognizing a bear market, but retail investors can also anticipate a potential crisis by observing the movements of the crypto market.
Suddenly, the bear market phase arrives – and with it comes panic among most investors. This phase consists of sudden changes in most digital asset prices (especially Bitcoin, Ethereum, and other major assets), basically due to large institutional players redefining strategies to protect their wealth.
After all the damage done to several portfolios, then it is time for the stabilization period. This is the longest stage, in which investors remain pessimistic and just follow the news, remaining under a defensive approach until the danger is over.
Then comes the anticipation, when some investors who manage to remain optimistic begin to try to see an economic recovery. While it’s difficult to predict when these phases will occur, just understanding them is an essential first step to preparing for the impact.
Protecting Crypto Profits During a Bear Market – Opportunity Savings
Retail crypto investors must always have reserved funds within a special account to seize opportunities that may appear during a bear market. In this sense, surviving a bear market does not mean hiding under a stone while waiting for the next bull trend. Instead, it means actively working to protect the assets within the portfolio.
These “opportunity savings’ ‘ give the investor the possibility to buy cheaper cryptocurrencies throughout the bear market, capitalizing on short-term operations while hodling strategic assets that will certainly appreciate when the “dark phase” is over.
A very useful tip is not to sell all the digital assets in a wallet. Instead, the ideal is for the investor to make only partial sales, thus preserving strategic assets for the bull market.
As long as a bear market is distressing, there is always a light at the end of the tunnel. In this sense, an investor must remember that, after the end of the bear market, there is always a bull market waiting (especially considering the volatility of digital assets).
A bear market can be a great opportunity to buy cheaper altcoins and expect them to appreciate in the long term, selling them at more attractive prices and leveraging profitable trades.
Ultimately, it’s up to the investor to know how to deal with the risk associated with crypto investments. Undoubtedly, history has proved over and over again that patient crypto investors are always rewarded with friendly price appreciation at the end of a period of market pessimism.