The Current Crypto Market Scenario
The current scenario of the crypto market has raised a lot of opinions from various people. The most commonly used terms, specific to the crypto space, since the beginning of 2022 have been the ‘volatile market’ and ‘crypto bear market’. If we take a step back and take a look at investing in general, the crypto space will not look much different than the other traditional assets. Though the kind of volatility that the crypto markets usually go through during a bear market tends to be slightly on a higher scale.
As the crypto market is going through a ‘crypto winter’ phase, it is essential for every investor to analyze the market and its past behavior. However, rather than reacting based on FOMO during such market cycles investors should strategize and optimize their methods with thorough research and make the most out of such opportunities. According to experts, it is a great time to add some strong crypto assets to your portfolio at a small amount. To understand what options one has available during these bear markets, let us take a look at a few methods that shall help you just not survive the bear market but also benefit from the same.
Read more on What is Crypto Bear Market?
CRYPTO BEAR MARKET: THE INDIAN SCENARIO
The Indian experience of the crypto bear market is slightly different from the rest of the world. Why so?Primarily because of the fact that we are now living in the reality of a 30% tax on crypto gains and a crippling 1% TDS on every crypto sale transaction. And top that off with no off-setting of crypto losses against crypto gains, or any other gains for that matter.
The highest tax slab of 30% tax became applicable from the 1st of April, 2022, while the 1% TDS came into effect on 1 July, 2022.
Not to mention, despite the Finance Bill of 2022, which outlined the above mentioned taxation implementations. All this combined with the global bearish sentiment in the market, and the whole financial market as a whole has raised a lot of FUD amongst crypto investors in India.
Read more to get detailed information on 30% Crypto Tax in India
WHY ARE CRYTPO TRADING VOLUMES AFFECTED FOR INDIAN EXCHANGES LIKE COINDCX?
Well, the reason for that is very simple. On 1 July, 2022 – the new 1% TDS rule came into effect as it was outlined in the Finance Bill of 2022. Naturally, such a heavy TDS on every sale transaction that took place on Indian crypto exchanges would severely cut into the profits (and losses) of traders and investors in the Indian crypto ecosystem.
So, the TDS measure introduced by the government greatly disincentivizes day traders, who were up until now actively trading on our platforms. Hence, the trading volumes have been greatly affected post 1 July, 2022.
The rationale behind this TDS deduction is like any other TDS provision: one is to obtain information about the trades so that the government can collect the optimum tax and the second is a recurring revenue source before people pay their taxes at the end of every quarter or the year. However, market experts strongly believe that the implementation of this 1% TDS on crypto transactions will severely hamper the growth of the industry and even adversely affect tax revenues of the government from this industry.
Read more in our comprehensive guide on 1% TDS on Crypto
Top Bear Market Indicators
In simple words, a bear market is when the assets had a steady decline in their value for a certain amount of time. This can be due to several reasons like when the supply of an asset is typically higher than the demand because a large chunk of investors or crypto whales starts to sell their loss-making assets from their portfolio fearing further price drops. Here are the other indicators that cumulatively result in a bear market.
- When the Economy is Unstable: The bear market is often related to the economic scenario of the world. When the unemployment rate is high and there is a visible decline in GDPs, it affects the investing assets’ values as well. The current pandemic situation along with government interventions also cater towards triggering a bear market.
- Business Profitability: The economic decline also affects businesses. This period often sees layoffs and budget cuts along with a decline in corporate profits. The tight monetary space that this creates to being another significant indicator of the bear market.
- Investor Sentiment: The weak economy and low-profit rates eventually decrease the interest of investors in various investments, thus resulting in them selling their assets. A certain amount of time with this continuous behavior would lead to a consensus that the market has stopped growing and will probably not revert any time soon. More and more investors would stop buying, or move their money to less volatile assets.
Read more in detail on Top Crypto Bear Market Indicators
5 WAYS TO SURVIVE CRYPTO BEAR MARKET
Looking at the indicators that lead to a crypto bear market, it is essential to understand the ways that might help in surviving the markets. Let us dive right in and make a mental note of the survival hacks!
1. ACCUMULATE WITH DOLLAR COST AVERAGING
One of the most crucial things to remember during crypto downtrends is that it is normal for the crypto market to have a negative year, it’s all a part of the business cycle. If you are a long-term investor, as in you are investing for a time frame of more than ten years, you should try to take advantage of dollar-cost averaging (DCA).
Dollar-cost averaging refers to the investment strategy wherein an investor divides the total invested amount across periodic purchases of the asset with an effort to reduce the impact of volatility on the overall purchase. The purchases can take place regardless of the price of the asset and at regular intervals. By purchasing crypto assets regardless of price, investors often end up buying shares at a very low price when the market is moving down. Ultimately, this helps the investors to average down their cost leaving them with better overall price entry for the crypto assets.
Rupee cost averaging also works similar to dollar-cost averaging. However, there are times when investors due to other priorities miss out on their regular investment to average down the overall cost. So why not automate the entire process? Investors can now perform Rupee cost averaging (RCA) with the Crypto Investment Plan or CIP feature introduced by CoinDCX.
Diversification is the key factor to fight volatility. A wise investor must spread his or her portfolio among various crypto assets. The process of diversifying the portfolio among various crypto assets depends solely on the risk appetite of the investor. The goals and conditions of every investor are different, with a proper asset allocation strategy investors can easily avoid potential negative impacts on their assets. All you have to do is not to put all your eggs in one basket.
Additional Read: How to diversify your crypto investment portfolio
3. INVEST ONLY WHAT YOU CAN AFFORD TO LOSE
Having a proper idea about your risk appetite is important before you start investing in any asset class. This becomes all the more important with volatile asset classes like crypto. Investing is good to create long-term wealth, however, it is important to invest wisely. No one wants to become the biggest crypto investor while sleeping on the streets. Invest only that much which you can afford to lose. One should always remember that bear markets and minor corrections can be destructive.
Additional Read: Which is the best crypto to invest in?
4. REBALANCE CRYPTO PORTFOLIO
Over time, your crypto assets can appreciate and depreciate and it can happen more quickly than your cash or bond holdings. This might push your portfolio out of alignment. However, this should not be seen as adversity. Investors must consider it as an opportunity to re-address the imbalances that have occurred. If certain crypto assets take up a large portion of your investments, you might consider selling a part of it and moving the money to cash equivalents or might invest the same into other more promising assets after doing the due diligence over that asset.
Bear markets often provide good investment opportunities to investors. Some of the common terms you would often come across with respect to your crypto assets during bear market are battered, underpriced or beaten up. Value investors often consider the bear market as a buying opportunity because valuations of good cryptos get hammered downing along with poor cryptos. Value investors often build up their position in their favorite crypto-asset during the hard times in the market and wait for the good old times to return.
Read: Crypto Technical Analysis: How to do technical analysis
5. DO NOT FREAK OUT
The dow climbs a wall of worry is a very old saying in wall street. According to this proverb, all investment assets continue to climb up or rise in value despite economic issues, natural calamities, or other factors. Investors must always keep their emotions separate from their investment decisions. One should always take their investment decisions wisely and rationally. Never become fearful or anxious about a certain situation and let it cloud your rational judgment.
During bear markets, the bulls stand no chance against the bears. Don’t make any sudden moves and stay calm, this will only save you from becoming a bear lunch. This is when HODLing comes into play. If you have done your research and believe in the long-term prospects of the asset, HODLing can also get you through the phase. It’s just that before you take any decision just have your fundamentals clear about the certain crypto asset and take a decision accordingly.
Fundamental Analysis of Crypto
One of the major methods by which one can analyze the value of a crypto asset is by analyzing its fundamentals. There are several factors that one has to consider before conducting a Fundamental Analysis. They are:
- Target market Competitor comparison,
- Team Roadmap,
- Releases and development Partnerships,
- Utility Status, and active users
- Community and reviews,
- Real-world use case,
- Price history
- Token metrics.
Unlike traditional finance, a crypto asset’s value is derived from the number of wallets created, the number of transactions made, along with the volume and frequency of these transactions.
Additional Read: How to do Fundamental Analysis in Crypto
SUMMING IT UP!
No investor wishes to see his or her investments in red. However, the moment you choose any asset class the idea of a bear market or price decline must be clear in your mind. Investors must remember that what goes up will come down. Therefore, invest only as much money as you can afford to lose. Do not panic during such situations and use the above methods to mitigate the situation. That being said, always do your own research before investing in any crypto asset because strong assets have greater strength to bear the downtrends.
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Read more articles on Crypto Bear Market below:
- Top Crypto Bear Market Indicators
- How to Prepare for Crypto Crash
- Crypto Bear Market 2018 vs 2022
- What is Crypto Winter?
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