With the prices of leading cryptocurrencies like Bitcoin (BTC -7.69%), XRP (XRP -10.11%), and Solana (SOL -14.04%) plunging over the last 30 days, many as much as around 30%, it’s natural for investors to fear the onset of a bear market. But there isn’t any guarantee that a bear market is here, or that one will come soon.
Regardless of what happens, you aren’t powerless in the face of the market. If you’re afraid, there are three ways you can prepare.
1. Check your theses
Your confidence isn’t going to withstand dropping prices for very long if you haven’t articulated a strong investment thesis for each coin you’re holding. If you’re worried about a bear market, check that the theses for your holdings are as strong as they were on the day you invested.
For Bitcoin, that would mean verifying that the core supply-and-demand dynamics, based on the ever-lower quantity of newly minted coins, are still intact. For XRP, you’d need to confirm that banks are still interested in holding it to save on international money transfers. And for Solana, you’d need to make sure the project ecosystem is still rich, the liquidity still ample, and the community of developers still enthusiastic and working hard.
If you find that an investment thesis no longer applies, it’s time to consider selling the asset before prices drop. But if it still applies, you’ll find it easier to hold on to that asset during a bear market. You might even want to buy the dip, making the drop a lucrative opportunity.
2. Set up a plan to start deploying capital slowly
Bear markets are the times to buy. You can only do that if you have the money. And while it isn’t strictly necessary, it’s helpful to have a plan for deploying it.
Dollar-cost averaging (DCAing) into high-quality coins over time is your friend here. XRP, Solana, and Bitcoin all meet the quality standard you should be looking for.
Due to the volatility associated with cryptocurrencies in general, as well as their tendency to fall sharply for longer than anticipated when conditions are sour, a leisurely pace of regular purchasing is the best approach. Each purchase should be relatively small relative to the capital you set aside. That way, it won’t be as stressful if your initial purchases are underwater, which they probably will be.
Bear markets can last as long as a couple of years. In crypto, the Bitcoin halving schedule (one roughly every four years) has so far tended to provide a market structure that prevents bear markets from dragging on for too long. Riskier assets like XRP and Solana fall more deeply but tend to bounce back harder.
But when should you start purchasing? With a DCA strategy, the question is less urgent, but as a rule of thumb, once your target coins have lost roughly 60% of their value relative to their last peak, it’s time to start if you haven’t already.
3. Remember Warren Buffett’s teachings
Everyone has heard famous investor Warren Buffett’s adage that investors should “be fearful when others are greedy and be greedy only when others are fearful”. Internalizing this lesson is difficult, and actually trading this way is even harder, so start as soon as you can — especially if you’re worried about a bear market right now.
In practice, it’s tough to be greedy when others are fearful because it’s frightening to purchase coins when they’re rapidly losing value, despite that being roughly when the financial opportunity is growing the fastest. But look to the long term. If you’re thinking about a proven coin like Bitcoin, XRP, or Solana, the price five years from the onset of a bear market will almost certainly be even higher.
If you’re patient, like Buffett, it’s a lot easier to buy when you stand to gain the most. At the same time, you don’t necessarily need to “be greedy.” It’s perfectly acceptable to just nibble on assets when they’re getting cheaper, which can be a lot easier during periods of uncertainty.
Alex Carchidi has positions in Bitcoin and Solana. The Motley Fool has positions in and recommends Bitcoin, Solana, and XRP. The Motley Fool has a disclosure policy.
