Quick guide: How to avoid crypto bear market mistakes and be ready for the next bull run

During the crypto downturn, CoinDesk surveyed some survivors of the last bear market for advice on what to do and not to do.

Cryptocurrency prices have plummeted, some crypto projects have gone bust, many companies are struggling and have stopped hiring, and the usual “crypto is dead” headlines are hitting the mainstream media. Things aren’t looking good.

But those who have been in crypto for a while have seen it all before. Crypto’s extremely cyclical, characterized by bear and bull markets. In bull markets, like the one that started in late 2020 and ended in late 2021, prices can rise by double digits on a daily basis. During those times, it feels as if the market is destined to go only up. But in a bear market, prices may fall 90%, followed by another 90% and so on.

Although the previous crypto bear markets coincided with bullish sentiments in equities, now crypto is tightly correlated to a macro environment with a recession potentially on the horizon.

Should you panic? Should you double down on investments? As we enter the depths of the bear market, CoinDesk has asked survivors of the last bear market for tips on how to stay sane during downturns, decide and take the right courses of action and prepare for the next bull market. They were crypto newbies when they began, but today they are deeply embedded in crypto, participating as investors, developers and traders. Here’s what they had to say.

Take a profit

To HODL or not to HODL, that is the question.

In crypto, resistance to selling – holding or HODLing – despite a gloomy outlook is a widespread behavior. “Don’t risk your lifestyle because of a HODL meme. No one went broke taking a profit,” Tyler Reynolds, a Web3 investor, told CoinDesk. Taking a profit means selling a percentage of your gains. It doesn’t necessarily mean getting out of the market completely.

“For your sanity, you may be best off determining a portfolio-wide stop loss where you say you will sell everything if it gets below a certain amount,” he said. Most centralized crypto exchanges let users place a stop-loss order either in terms of a percentage drop (sell bitcoin (BTC) when it drops by X%) or a specific price (sell BTC at $X).

“Set sell targets/take profit levels in advance, at least loosely, and stick to them. Your objective self from the past is a better guide than your euphoric self in the future,” Cred, a pseudonymous trader, told CoinDesk. Cred has a free and comprehensive technical analysis course available on YouTube.

Avoid panic selling, but also avoid greed

Taking a profit, and perhaps having a strategy to exit the market completely, doesn’t mean panic selling.

“Avoid panic selling unless you’re in the urgent need of money,” Fedor Linnik, builder of several NFT (non-fungible token) projects, said. And in retrospect, he said, “being greedy and being afraid to miss the top” was a mistake he made in 2018. Make your selling decisions based on data, not on emotion or on advice from social media.

Stay solvent

Most people who invested in crypto in late 2020 saw their portfolios at all-time highs in April or November 2021. But the fireworks are behind us.

“Don’t trade or invest with the mindset of ‘making back’ what you lost in the bull; it’s an inherently flawed comparison,” Cred said.

Although it may be tempting to try and “make it back in one trade” by entering highly risky trades, revenge trading can also easily backfire. Alex Svanevik, CEO of data analytics firm Nansen, said staying solvent is key in a bear market, and it helps if one didn’t “touch leverage.”

Leverage is a common tool in crypto markets, but resorting to leverage to buy coins in a falling market “has a much higher chance of ruin and will erode your mental capital,” Cred warned. “Even if you manage to get a good entry, the chances that you have the mental fortitude to hold a large position like that are significantly reduced.”

Research projects

Crypto is a place for innovation and experimentation. Many projects pop up, die, reinvent themselves, succeed or vanish from memory. Crypto projects often have tokens associated with them, and the tokens are often (but not necessarily) tied to the success of the projects, especially during the early days.

Reynolds said what worked for him during the last bear market was to keep investigating both new and old projects. “You will need to keep re-investigating as projects pivot from their original idea and find a much better product-market fit, like Aave,” he said. “I look for a core new mechanism that creates a better user experience and bet on multiple projects utilizing it.”

He explained that in this last bull cycle creation of peer-to-contract protocols was the core new mechanism. People who instead bet on peer-to-peer protocols mechanism “mostly lost.”

Peer-to-contract protocols include Uniswap, Aave, Trader Joe and many others. Although many peer-to-peer protocols like NFT swapping protocol Sudoswap have found a market fit, others like peer-to-peer payments protocol Dharma have acknowledged the failure of the model.

Nobody knows what the narratives of the next bull cycle will be. “But I expect the person that finds it and bets on protocols using it will do very well next cycle,” Reynolds said.

Get involved with projects

Passively researching projects isn’t the only option available to those interested in crypto.

Many crypto projects, especially those building in decentralized finance (DeFi), are structured as decentralized autonomous organizations, or DAOs. Anyone can join and participate, and as an added benefit, that can be a good way of getting a good job.

“Focus on building and contributing, understanding the core underpinnings of the ecosystem instead of whatever’s hot that day,” blockchain developer Foobar said. Building and contributing help advance the industry, and there’s a high premium on having an impact on the ecosystem. It helps you understand crypto better and also helps you build relationships.

Have an ape fund

“Aping” is a common activity in crypto. It refers to investing in project tokens without much due diligence simply because the tokens are new and shiny and could soon rise in value.

But aping is a strategy that is more likely to work in a bull market than in a bear one, Svanevik said. “Start spending time looking at data and reading up on projects instead of aping things mindlessly.”

Aping doesn’t have to be throwing money at whatever feels hot and is shilled by your favorite YouTube influencer. Perhaps a project that aligns with your long-term convictions will launch or appear on your radar and you will want to get in on the ground floor. “Have an ‘ape fund’, a modest portion of your portfolio, which you use to try new tech, new projects and so on,” suggests Cred. “The best performers of the next cycle probably don’t exist yet or are in their infancy.”

Be mindful of vesting schedules

If a project has existed for a long time, then it’s likely that its investors will be able to sell their tokens soon, if they haven’t done so already. Unlocks, as they are called, can happen anytime, including during a bear market. The sell pressure tends to push down the price.

“Be mindful of vesting schedules so you don’t get dumped on,” Svanevik said.

Build relationships

Smart contracts, protocols, front-running bots… It’s easy to forget there’s a human element in crypto, and it’s a tight-knit community that lives on crypto Twitter and frequently meets in conferences around the world.

Jason Choi, a crypto investor, joined the industry in the depths of the 2018 crypto bear market, and he said he spent almost “all the time building relationships, researching and creating content, which paid massive dividends down the road.” He said that during a bear market “there’s a lot of self-selection in who chooses to double down their efforts in the industry, so it’s often the best time to make lasting, meaningful relationships.”

During the last bull market, NFTs rose to prominence in crypto with their emphasis on community, and it’s a sector that didn’t exist during the last bear market. “Use the bear market time for networking. Especially now. Hanging out in a JPEG-based community is still more fun than it was in 2018-19 when there were mostly valueless tokens around,” Linnik said.

Keep your job

Think twice before quitting your job just to pursue your interest in crypto. If you have bills to pay, you may be better off sticking with a secure job, and your participation in crypto can be a side gig.

“If you have a job, keep it unless you’re absolutely certain that you’d be better off doing crypto full time. Especially if you want to be a trader, most people that think they need to be full time don’t actually need to be full time and end up overtrading,” Cred said.

Get a job in crypto

Maybe the point is to keep a job – but not necessarily your same old job. To accelerate your crypto journey and also earn an income in the meantime, consider getting a job in crypto.

Linnik, who saw his crypto portfolio value sharply decline, had to get a job in the last bear market. And it was a job with an NFT startup in 2018. “It failed in 2019, but we were prepared for the NFT boom in 2020,” he said.

Although some major companies such as crypto exchange Coinbase have gone as far as rescinding offers at the last minute, many are still hiring.

Have a life outside crypto

Crypto is a 24/7 market. The industry often feels like a fast-moving Netflix show, and it’s so easy to get carried away and lose sight of other things in life.

“Have hobbies, friends outside of crypto and finance, read books and articles outside of crypto and finance,” Cred said.

But that’s also true for your investment portfolio. Foobar swears by the maxim, “Enough crypto to be happy if it goes up, and enough elsewhere to survive if it goes down.”