How to trade crypto in bull and bear markets

by Ann deBruyn

Coins with crypto logos sit on a tablet showing jagged charts

Photo by Rodnae Productions from Pexels

Bull and bear markets are a natural part of any financial market, including cryptocurrencies. While investors love seeing prices rise, those who spend a few years in the market will no doubt also experience declines.

The severity and duration of price drops vary widely, which can be incredibly stressful for investors—if they don’t have a plan in place. As with bull and bear markets in stock investing, it’s essential to think about how you’ll deal with the volatility of investing in crypto. Without a plan, it’s easy to make hasty, emotionally driven decisions that could hurt your portfolio.

What are bull and bear markets in crypto?

A bull market is a period in the crypto market when prices rise for an extended period. Crypto bull markets have typically lasted for a couple of years. Although these periods do see price drops, they’re usually not as severe as a full-blown bear market, and many investors view them as good buying opportunities for the long term.

Bitcoin—the oldest and largest cryptocurrency (by market capitalization)—has had four bull markets since it broke USD$1 in 2011. In the latest of these, the coin rose over 1,100% from the lows of the COVID crash in early 2020 to its all-time high in late 2021.

A bear market, on the other hand, is a period when crypto prices crash from all-time highs and continue to fall steadily. Unlike a minor “dip,” a bear market could see crypto prices fall 50% to 90% from their highs. In fact, bitcoin has fallen 50% or more seven times since 2012, with the largest fall being about 87%. For added perspective, the average market-weighted drawdown, or decrease, in bitcoin’s history is about 60%, and as of early June 2022, the coin is down well over 50% from its recent high of above USD$67,000.

Because of their severity and the sense of doom they create in investors’ minds, crypto bear markets are sometimes referred to as a “crypto winter.”

The psychology of crypto investing in bull and bear markets

Psychology can play a significant role in an investor’s success. Each stage of the market cycle corresponds to a typical psychological state, and knowing this can help you avoid making decisions based on emotions.

For instance, when the market is at or close to all-time highs, euphoria prevails. Investors can fall into a false sense of complacency and end up making decisions they may regret (like buying more crypto at the peak of the market) or thinking a certain cryptocurrency will only keep going up. On the other hand, at the depths of a bear market, investors suffer from disbelief and agony, and they may feel as though the markets will never rise again.

It’s very difficult to make strategic investing or trading decisions when you’re overcome with strong emotions, so consider having a plan in place for different market scenarios. Below are tips for both long-term investors and short-term traders on how to deal with bull and bear markets.

Tips for long-term investors

Set your asset allocation: Strategic asset allocation—deciding how to divide your portfolio among different assets—isn’t just for stocks and bonds. In crypto investing, it means deciding how much of your portfolio to allocate to certain coins or types of coins. For example, an investor might hold 50% bitcoin (BTC), 30% ethereum (ETH) and 20% other large altcoins (coins other than bitcoin and ethereum).
Only buy quality: While it can be tempting to buy new, small and untested cryptocurrencies in the hope of “getting in on the ground floor” or turning a quick profit in a bull market, long-term investors would be wise to stick with assets they’d be comfortable holding even in the depths of a bear market. Before you click “buy,” ask yourself if you’d be happy to hold that cryptocurrency through an 80% drawdown.
Buy the dip: The crypto market is extremely volatile, and although that can be unnerving, it also presents long-term investors with ample opportunities to buy crypto at a “discount” during dips, corrections and crashes. While this is not always advisable for short-term traders, buying crypto during market dips could prove beneficial for those with a long time horizon.
Rebalance regularly: Some investors try to time the ups and downs of the market, but this cannot be done accurately and consistently. So, one way to build profit-booking into your portfolio is to rebalance it regularly, say, every 12 to 18 months. Rebalancing is the act of selling winners and buying losers to reset your portfolio to its strategic asset allocation.

Tips for short-term traders

Know your targets: One of the most common trading mistakes is not knowing at exactly what price you want to buy or sell a cryptocurrency. “I’ll wing it” is a recipe for disaster. If you don’t have precise buy and sell prices in mind, you may get swept up in market noise and make a money-losing decision.
Use stop-loss orders: To limit your losses, you can place a command on your trading platform to automatically sell your crypto if its price falls below a certain level. Suppose you buy ETH at $1,815 but want to sell your position if ETH falls below $1,700. You can place a “stop-loss” order on your trading platform, so that it will automatically sell your ETH if its value falls below $1,700.
Book profits regularly: Since short-term traders aim to enter and exit trades quickly, they need to take profits regularly. During bull markets, traders can get carried away by the prevailing euphoria and may choose to hold on to a crypto for longer than planned. This is highly risky, since the market could fall suddenly and wipe out your notional profits.
Don’t trade on leverage: Some traders borrow money to buy cryptocurrencies. The most common way to do this is through “futures contracts.” These financial instruments give traders the ability to “leverage” their cash—to buy more crypto than they could have with cash alone. While not all crypto platforms allow leverage, it could be as high as 20 times the money you have. So, on certain platforms, a trader with $1,000 in their account could buy crypto worth $20,000. The danger of trading on leverage is that if the value of your investment falls, you stand to lose far more money than you have.

Where to buy and trade cryptocurrencies in Canada

If you choose to buy crypto, you can do so in Canadian dollars on NDAX, a compliant crypto trading platform that offers over 30 digital coins. For crypto trading activities, NDAX has a competitive transaction fee of 0.2%, and it does not apply a spread or other markups. Deposits are free, and withdrawals cost $4.99 flat. Staking is available for certain cryptocurrencies.

NDAX provides customer service via live chat, email and phone, and the platform follows robust security practices including the use of cold (offline) wallets to store your crypto.

How to buy and trade crypto on NDAX

Sign up for a free NDAX account.
Fund your account by e-transfer, wire transfer or bank draft.
Select the crypto you want to buy and enter your desired amount.
Double-check the details before you commit.

Understand the risks of crypto investing and trading

While cryptocurrency investing can be profitable, the technology is evolving and the market is still highly volatile. Before you trade or invest in any digital coin, consider whether it fits your investment plan, risk profile and long-term goals. Always do your own research, and carefully review the service providers’ user agreements and risk disclosures before you click “buy.”

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