Bitcoin

How To Make Money When The Cryptocurrency Market Is Down

Jan 18, 2021, 5:24PM
4 min, 17 sec READ
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2020 has been an incredible year for cryptocurrencies. Since last January, the market cap of the industry has quadrupled.

With prices reaching new highs, it is an ideal time to buy Bitcoin and enter a profitable market that has brought happiness to many investors. 

That being said, this wasn’t always the case. Just a couple of years ago, it was all doom and gloom in the crypto markets. Once the ICO bubble of 2017 burst, the market shifted into a downward trend and we entered a difficult period that lasted almost two years. 

And as markets usually work in cycles, the current price rally is bound to reverse at some point. Many uninitiated traders might think that once this happens, it’s best to take a step back and wait it out. 

However, this is a flawed assumption, because bear markets are a perfect time to start stocking up on Bitcoin before the inevitable market shift into a bullish trend. In this article, we will explore some of the best ways to make profits when the market seems to go downward. 

We will discuss some methods and strategies that should keep your portfolio in the green, preparing you to take even bigger profits when the market momentum turns upwards. 

Swing trading

In a bull market, the best investment strategy is to buy and hold whatever cryptocurrency you think can make you the most money. 

When the price is going down, however, you should exploit the trend and take advantage of short-term price movements of different assets. Experienced traders usually increase their bitcoin portfolio during these periods by buying more altcoins when the price is low, and selling them once they reach the top of the trend. 

While this method can provide consistent results, it goes without saying that trading is not for everyone. To be successful in swing trading, you should above all begin to understand the basics of technical analysis that will provide you with the best entry and exit points in the market.

Shorting Cryptocurrencies

Shorting or short selling can be considered as the opposite of buying a cryptocurrency and hoping for its price to increase. It is one of the most common methods to take profits in a declining market. 

Here’s how this works - when shorting, you borrow funds from the crypto exchange and you sell the asset at the current market price. For instance, If the price of Litecoin remains in a downward momentum, you can close your position at a later date, rebuy LTC for a cheaper price, and cash in the difference as profit. 

However, if your assumption was incorrect and the coin’s price goes up, you will need to buy back the coins at a higher market price, which results in a net loss. 

Considering cryptocurrencies are a highly volatile asset, this method can bring some huge profits, but can also result in severe losses. 

Investing in trend-resistant coins

Sometimes, there are a few coins on the market that defy all expectations. When everything is going down, these crypto-assets seem to be going against the trend. 

Being able to detect which coins can behave against the current can be done by following the market closely and comparing price patterns. There are two notable examples of such coins that have gathered a major following thanks to their unexpected behavior. 

The first one is Binance Coin (BNB), which was the only coin that actually made significant gains during the 2019 bear market. It made over 1000% in profits when the entire market was struggling. 

Another coin with mentioning is Chainlink (LINK) which preceded the current bull run, outperforming popular coins like Bitcoin and Ethereum by 300%. 

Switch to passive income

If you aren’t feeling comfortable enough to invest or trade on short-term price action there’s another option. For example, you can invest in coins that can provide passive income, leveling out the losses from the decreasing prices. To this end, there are two major opportunities open to crypto investors: 

  • Crypto Lending - by lending crypto on popular exchanges or through providers such as Celsius or Aave, you can lend your cryptocurrencies to other users and receive interest on a regular level. 
  • Staking - you can invest proof-of-stake (PoS) coins and lock the funds on the network to receive staking rewards. Check out the StakingRewards website to find out which ones offer the best ROI. 

Conclusion

Many assume that you should stay away from cryptocurrency trading when the markets are going down. This is simply not true, as bear markets are often the best time to increase your portfolio and get more Bitcoins for the next market cycle. 

Above are just a few of the methods that you can use to start making profits in a bear market. Once the unavoidable downward trend comes, you should come prepared with a good knowledge of technical analysis which will help you turn the odds in your favor. 

Disclaimer: information contained herein is provided without considering your personal circumstances, therefore should not be construed as financial advice, investment recommendation or an offer of, or solicitation for, any transactions in cryptocurrencies.