Risk Management in a Crypto Bear Market

Risk Management in a Crypto Bear Market

The bull market in the last couple of years has changed many lives. First, the market rose to new heights from BTC, going to $69K from $3K; this was followed by a consolidation and bear phase. It is obvious that the markets can not just go up; it is evident to fall due to both exhaustion and liquidity. 

Bull markets are clearly profitable, but if you play your cards right, bear markets can also make you money; in many cases, more than bull markets. But there is a huge deal of hysteria involved when it comes to bear markets. We can usually divide bear markets into four phases: 

Phase one: first leg down

This phase comes liquidating a largely bullish market. In the case of cryptocurrency, these usually start with a flash crash that takes minutes, followed by a day or two of other minor crashes. During this phase, the market sentiments are usually still bullish, and you will largely hear the word 'correction' being used to describe the situation. People usually buy spots and long contracts on critical support.

Phase two: Realization

Around this time, people start to understand what hit them and plan on how to recover their losses after buying the dip. The sentiments are mixed at this time; extremely bullish individuals tend to stay bullish, and the moderates tend to explore the possibility of a bear market. Huge short positions are cultivated at this point as a hedge against their declining spot portfolio. 

Phase three: stabilization

The market structure seems to stabilize both because of over-leveraged short positions and immense upside liquidity. However, in this phase, the market would go sideways for prolonged periods. While the sentiments slowly turn bullish because of a bit of upside caused by FOMO shorts, the market is now ready for another leg down. 

Phase four: The last leg down

Generally caused by a black swan event, the bear run's last phase is another series of flash crashes bringing in devastation and mayhem. People start to lose hope in the markets, most of the market sentiment turns to extreme bear, and there is a severe liquidity crunch. This is where the opportunist starts to invest; this is the actual ' buy the dip' phase where institutions tend to get involved. This phase is hard to find and usually, in crypto, is very short-lived; markets are heavily profitable to get in and are totally in chaos and disarray. 

Alternative investment strategies in cryptocurrencies that are testable in crypto winters

Liquidity provider

A liquidity provider is when an individual provides liquidity to exchanges, generally decentralized. Instead of just investing in cryptocurrencies, you can get interest by staking your investments into a token -stablecoin pair. For example, you can stake your BNBs along with USDTs, essentially locking them for a given period of time. Investors with a high-risk appetite can't be satisfied with these returns, but it is an excellent way to save your cryptocurrencies or stable coins from unproductive FOMO or FUD. 


This is something every opportunist does. When the markets are in their last phase, and the fear and greed index indicates extreme fear, they can start investing money in the markets, preferably top-tier coins. Investing in the market all at once is also not recommended; only 5-10% of an investor's stablecoin portfolio should be invested at one time and then repeat the process during another dip. This method is known as DCA or Dollar Cost Averaging, and it is highly beneficial in times of bumpy and unstable markets. 

Futures and options

Options and futures are perpetual trading strategies that are essentially leveraged contracts that allow you to bet against and with the markets. To bet against the market, traders need to use the put and short contracts and to bet with the market; traders need to use the call and long contracts. 

Traders also can hold short positions for a prolonged period of time. These are known as swing shorts and are widely used during bear markets. To avoid the whole market situation altogether, traders can scalp in time frames spanning from seconds to minutes and earn unbelievable amounts of profit. 


With the recent bearish market conditions, the NFT markets are also not looking good. But many NFT and NFT labels are not correlated with Bitcoin and the crypto market; hence can be profitable. 

Low market cap gems

Low market cap gems have very low volumes and market cap; these coins generally do not have enough liquidity to follow markets and thus have the potential to outperform markets. It is important to note that some of these coins are either meme coins, fake, or just downright flawed. Investors need a high level of fundamental analysis to get profitably make money out of this high-risk, high-reward scenario.


ICOs and IDOs are another way to get in on some new tech trying to raise funds for launching their products. These are high-risk, high-reward machines that can yield profits that can multiply your primary investment. Smart money and fundamental analysis are the two skills that are highly recommended before getting into this strategy. To find some good and upcoming ICOs or IDOs, you can visit CoinGabbar. 

Some tips for risk management in the bear market
  • Diversify your spot portfolio; never go all in into one cryptocurrency or stablecoin.

  • Never just trade with your whole portfolio; a bear market means lots of volatility and liquidity issues. 
  • Explore nontraditional strategies and methods(as mentioned above).
  • Sometimes, it's better to just sit out and observe.
  • Consider hedging.; basically, bet against your own spot portfolio according to your analysis. 
  • Do not FOMO or spread FUD; take your money decisions whenever you are calm. Instinctive decisions do not always work. 
  • Do not overtrade. 
  • Cut back on your costs. Try to save and invest as much as you can (responsibly)in the fourth phase of the bear market.
  • Try to upskill yourself during this time. 
  • Catching the bottom is a myth; always play strategically and DCA.
  • Learn to cash in your profits; markets are not meant to go in the direction of general consensus. 

It is always believed that bull markets are for earning and bear markets for learning, but in due time burning through your hard-earned income and investments is not a very good strategy. Therefore it is advisable to always plan strategically for the short, mid, and long term. Strategic planning and investments have a few and low impact risks considering unplanned strategies that usually lead to disasters and liquidation.