How to act during a cryptocurrency market downturn: 7 proven approaches

Price drops in cryptocurrencies are an inherent part of the market’s development. Throughout the history of Bitcoin and other digital assets, we have repeatedly seen periods when coin values declined by 80-90% from their peak levels. The current BTC price is $88.75K, but this does not guarantee long-term stability. That’s why investors need to develop a clear strategy that will not only help them survive volatile periods but also profit from them.

Understanding the Cyclicality of the Crypto Market

The cryptocurrency market operates in waves: bullish periods are followed by bearish ones. Each cycle lasts approximately 4 years and is accompanied by capital movement, technological breakthroughs, and regulatory changes. A classic example is the “crypto winter” from 2017 to 2019, when Bitcoin fell from $20,000 to $3,200.

A bear market is not just a 20% decline, as in traditional finance. For cryptocurrencies, it is a prolonged period of low market confidence, where supply exceeds demand, and investor activity stalls. During such times, emotions often override reason, leading many traders to make rash decisions.

Managing Psychology During Losses

When your portfolio shows double-digit losses, staying calm is extremely difficult. However, this ability separates successful investors from those who exit the market at a loss. Remember: every decline is an opportunity, not a verdict. The key is to act systematically, not impulsively.

Long-term Holding Strategy (HODL)

HODL — an abbreviation born from a typo in a crypto community forum, which has become a philosophy for millions of investors. The simple principle: buy an asset and hold it despite market fluctuations and media hype.

This tactic suits those who believe in the fundamental potential of cryptocurrencies and their technology. HODLers ignore FOMO (fear of missing out) and FUD (fear, uncertainty, doubt), focusing on the long-term perspective.

When does it make sense:

• You cannot successfully trade short-term fluctuations
• You are confident in the potential of blockchain and a specific project
• Your investment horizon is 5+ years
• You are willing to ignore short-term prices

Dollar Cost Averaging (DCA) Method (DCA)

Dollar Cost Averaging is a proven method used both in traditional finance and crypto. The essence: regularly invest a fixed amount regardless of the current price.

Implementation example:

1. Determine the purchase amount (for example, $100)
2. Set a schedule (for example, every Monday)
3. Automate the process through bots on your trading platform
4. Stick to the plan, even if prices fall

The advantage of DCA is that you automatically buy more coins at lower prices and fewer at higher prices — averaging your entry cost. During a bear market, this approach can provide a significant advantage.

Diversifying Portfolio by Assets and Sectors

Concentrating investments in a single asset increases risk. Successful investors diversify their capital across different areas.

By asset types:

• Bitcoin — conservative choice, safe haven asset with limited supply. The $88.75K BTC price reflects its role as the most reliable crypto position
• Altcoins — high-risk segment with high return potential
• Stablecoins — conservative store of value during downturns
• NFTs and projects in Web3, GameFi, AI sectors — specialized investments for experienced traders

By market capitalization:

• Large-cap projects provide stability
• Mid-cap projects offer a balance of risk and return
• Micro-cap projects carry high risk but can deliver exponential growth

By sectors:

• Layer-1 blockchains (main networks)
• Layer-2 solutions (scaling)
• Decentralized exchanges (DEX)
• Metaverse and virtual worlds
• AI and machine learning technologies in blockchain

Before investing in any project, be sure to study:

• Whitepaper and technical documentation
• Tokenomics (distribution, supply, reward mechanisms)
• Price history and chart behavior
• Team and their achievements in previous projects

Profiting from Falling Prices: Short Selling

Short selling is an advanced technique that allows earning on price declines. The process: borrow an asset, sell it, wait for the price to fall, buy it back at a lower price, and return the debt, pocketing the difference.

In practice, it’s simpler — you just open a short position on the futures market, choosing leverage. When the price drops by 10% without leverage, you gain 10%; with 5x leverage — 50% (but losses increase proportionally if the market moves against you).

Important: this is a complex strategy. Beginners should not use short selling without a deep understanding of mechanics and risk management.

Hedging Positions

Hedging is insurance for your portfolio against sharp losses. Classic example: if you invested $10,000 in BTC, you can open a short position for $10,000 in futures. Any price movement losses are offset by profits on the other side.

Hedging tools:

• Futures (contracts for future price)
• Options (rights, but not obligations, to buy or sell at a certain price)
• Margin trading

The only costs are transaction fees, which are relatively small at large volumes.

Limit Buy Orders

Placing limit orders at unexpectedly low levels is a tactic often ignored by beginners. The idea: since catching the exact bottom is impossible (markets operate 24/7, drops happen instantly), you set multiple orders at different support levels.

When the market crashes by 50-70%, some of your orders will execute, allowing you to acquire assets at prices that seem impossible during times of high market value.

Stop-Loss: Discipline Against Emotions

A stop-loss order automatically sells your position if the price drops by a certain percentage. It prevents losses from growing uncontrollably and helps preserve capital for future opportunities.

Set your stop-loss according to your risk tolerance. For a conservative investor, it might be 10-15% from entry; for an aggressive one — 30-50%.

Security Rules and Long-term Success

Invest only free funds. The crypto market is unpredictable. If losing your investment significantly impacts your life, the amount is too large. Start small, learn, and scale gradually.

Continuously learn. Read crypto industry news, follow expert analyses on Reddit and Twitter, study technical and fundamental analysis. But remember to think independently — the crowd’s opinion is often wrong.

Perform due diligence before each investment. Study project whitepapers, assess team competence, check their history in the crypto space.

Store assets securely. Crypto wallets are divided into hot (online, more convenient but riskier) and cold (hardware, more secure). For long-term storage, use cold wallets — devices that keep private keys offline.

Set financial goals. Define why you are investing: capital accumulation, speculation, portfolio diversification. Don’t follow social signals — each investor has their own objectives.

Use take-profit and stop-loss orders. They help eliminate emotions from trading and stick to a pre-planned strategy.

Conclusion

Bear markets in cryptocurrencies are both a challenge and an opportunity. Investors who act systematically and apply proven strategies not only preserve their capital but also significantly increase their positions by the start of the next bull cycle.

Remember: success in crypto depends not on guessing the top or bottom, but on discipline, long-term thinking, and risk management. Use HODL for strategic positions, DCA for regular accumulation, diversification to reduce risk, and hedging and stop-loss to protect.

The current Bitcoin price of $88.75K is just one of countless milestones on the crypto history chart. What matters more is your readiness for the next cycle and understanding how to maximize gains during periods when the market is sleeping.