The bear market is upon us, and we are now feeling the pinch… Malaysians feel the effects every day, with the Ringgit falling and the inflation rate increases. In mid-May, Bank Negara Malaysia (BNM) also announced the overnight policy rate (OPR) increase to 2% to better curb inflation and ease Malaysians’ burden.
For us crypto investors, how can we reduce our exposure to risk, especially considering that digital assets are much more volatile and prone to extreme price movements compared to other asset classes? As cryptocurrencies garner more mainstream and institutional attention, it seems to increasingly correlate more with traditional markets, with factors such as inflation and geopolitical crises affecting the crypto market as well. However, it is important to remember that crypto-currencies and the underlying blockchain technology are not hype machines and get-rich-quick schemes, as there is real-world adoption of this emerging technology increasing year on year by various governments, institutions, and corporations.
Here are some tips to ensure we can all stay sane during a bear market:
- DYOR and do not FOMO to buy the ‘dip’.
Mike Novogratz, CEO of digital asset manager Galaxy Digital, warned against trying to predict a bottom to the recent crypto crash. Commenting on the recent crash, Novogratz said that trying to pick a bottom is an extremely elevated risk, stating that the market could crash further:
“Alts are down over 80 percent from the highs. In (2018) it was over 95 percent. That is down another 70 percent. My point is picking bottoms is dangerous and if you do, scale in slowly.”
Keep in mind that we can never time the markets and know what the real ‘dip’ is, and we might end up making a bad trade if we do not conduct both fundamental and technical analysis before making a trade. It is important not to blindly follow outside opinion before first fact-checking it, as the cryptocurrency space is rife with speculation. To minimize your exposure during these uncertain market conditions, investors can consider adopting the dollar cost average (DCA) strategy to spread the risk and lower the potential loss during investment. ‘Do not put all your eggs in one basket!’ represents commonly found trading advice from experts, with good reason.
- Stay focused on the long term.
Remember that the markets in general move in a cycle, and positive macro events might be able to improve market conditions in the future. It is important to know that certain factors affecting current market conditions might not have a lasting impact in the future when the next bull market occurs. The question is, can you make it to the end by preserving and planning to invest for the long term for years? Governments and institutions are seen to adopt cryptocurrencies, for example in the UK and US where national plans and regulations are in place to outline crypto safe adoption. All these further strengthen the case for this sector’s long-term development, although this will take some time and robust pricing is yet to be observed in the current price trend.
- Review your risk tolerance and do your investment planning.
These uncertain periods are timely for you to check your risk profile and re-evaluate your portfolio. Revise your existing investment strategy and check back regularly to determine if your strategy is still effective and relevant during different market conditions. You could also channel and reallocate your funds to another investment option rather than hold it in a losing position. You can also be on the lookout for other cryptocurrencies that may have strong fundamentals for diversification opportunities. By checking back on your crypto portfolio and the wider market you can identify mistakes in your portfolio and attempt to rectify them. Some key questions to ask: Are you too heavily relying on and invested in a
single blockchain ecosystem? What sectors are you missing? Note down any gaps in your portfolio. All of these provide you with a holistic view of how much risk to take.
Conclusion
Each investor has its own investment strategies and risk appetite when making investments in different asset classes. While recent events have affected many in the market and resulted in losses, you could reduce your exposure by reviewing your risk management strategies to ensure you are on the right track. Having a risk management strategy is important as it reduces the risk of you falling into emotional trading, which often leads to losses. It might also be a good decision if you will want to take a break from the markets if you find yourself getting too stressed, as you can always re-enter the markets once
you are ready, both mentally and physically. Keep the long-term mindset at the back of your head, and you will be a tougher and smarter investor to get through a bear market.
Jennice Yap, Tokenize Malaysia
Tokenize Malaysia is a local Cryptocurrency / Digital Asset Exchange(DAX) regulated by the Securities Commission of Malaysia and backed by Kenanga Investment BankBhd.
