The value of Bitcoin, the biggest cryptocurrency of them all, recently fell to its lowest point in more than six months, adding to fears in the community that we might be entering a bear market.
While Bitcoin has recovered a bit of value since sliding below $33,000 on Jan. 24 and was trading at $36,842 at the time of writing, the prospect of crypto falling into a genuine multi-year bear market remains real.
“Bitcoin along with the entire crypto market has taken a premature hit on the prospect of changes in fiscal policies in the US,” said Ben Caselin, Head of Research & Strategy at the crypto trading platform AAX. “In the process, similar to the first few years of bitcoin, there is a strong correlation with US equities.”
As fears of the prospect of a bear market grow, a lot of crypto enthusiasts are now wondering what their next move should be.
Trading is always an option. Crypto holders can try to guess which direction the market will move, buy high and sell low, and profit from the bear market’s overall decline. But although that sounds easy enough many investors find that it isn’t always so, with the danger being their portfolio could lose a lot of value.
For many investors then it’s usually far better just to HODL, which means keeping a hold of crypto assets throughout the ups and downs of the market and simply accumulating more whenever possible.
Hodling is popular because it means there’s no need to worry about the ups and downs. Most crypto enthusiasts agree that the most popular coins will always return to hit new all-time highs, so it’s simply a matter of hodling and waiting until that happens. The only risk is that an investor might need some funds, and be forced to cash out when the value of their assets is low.
That said it can be tough psychologically to keep hodling during a bear market, when the value of your portfolio is down 50% or more. Hodling requires a lot of mental toughness just to sit and wait things out.
Hodling the right way
The task of hodling can be made much easier though, and it’s all thanks to decentralized finance. The DeFi space gives investors multiple options to use their assets as collateral to take out loans for example, while simpler options include staking and yield farming.
Staking means locking in your cryptocurrency tokens so they can be used by the network to validate transactions on blockchains that use a Proof-of-Stake consensus, such as Ethereum. By staking, you’re essentially lending your coins to the network for a certain period of time, and will earn rewards for doing so
An alternative to staking is yield farming, which involves locking up cryptocurrencies into a platform to earn interest on those coins. It’s similar to a traditional savings account, with the amount of interest generated dependent on how many tokens you stake and the token’s popularity. Your tokens will be lent to other users, who take out loans at various interest rates.
AAX provides some decent yield farming opportunities for traders with the prospect of very generous returns. In a recent blog post it explained how one of its most popular savings products allows users to generate a 20% yield on a maximum deposit of 0.033 BTC over seven days, or a 16% yield on a max. deposit of 0.1 BTC for 14 days. It offers similar yields on Ethereum too, meaning users could potentially earn up to $168 each month at current rates.
Caselin said that regardless of how crypto investors choose to invest their coins, it’s important to remember that Bitcoin and other popular cryptocurrencies will continue to evolve as a hedge against poor monetary policy making.
“While there is no certainty around when the market will recover, accumulation and HODLing are key at this stage,” Caselin advised. “Generating a yield on crypto holdings with minimal counter-party risk is a sound strategy for those who believe crypto markets are set for more growth in the long term.”
For believers, the opportunity to stake their coins and earn rewards will give them the confidence they need to keep their cool during the next bear market. HODL on and use every opportunity to earn some more. While we can’t be sure exactly when the market will return into bull territory, those who hodl onto their bags will earn their rewards when it does.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
