Bear Market Mental Models - Are You Ready for the Next Bull Run? by@cryptoengineer
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Bear Market Mental Models - Are You Ready for the Next Bull Run?

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15 Mental Model from Crypto Bear: You don't have to be always right You are not diversified There is an offline world Your altcoins never reach ATH again The market moves in cycles This is time to learn You don't understand what you are buying Most projects work only during the bull market Stablecoins are not equal Understand your mistakes Project Value = Story + Numbers Fundamental vs technical analysis You don't have an investment strategy You are not managing your portfolio You are not managing your risk
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Bear Markets

The bear market is hard. Many individuals lost their cash made during the bull market. This time is likewise hard for our psychological wellness. This is particularly valid for individuals who are new to crypto. This is a cyclical market. We have ups and downs. Wealth creation and destruction. Hope and sorrow.

Figuring out how this market functions can give you the edge. Regardless of whether you miss this bull market or lost all your gains in this bear market, you can get ready for the following cycle. To do this, begin with the past. Dissect your errors and gain from them. Try not to stop here. Gain from others' mix-ups. In this article, you can find learnings from that bear market. I broke down the most popular investors’ errors and made from them mental models, which you can apply to your investment strategy.

You don't have to be always right

Most investors want to be always right. This is not possible in any environment. The market is not fully predictable. No investor or trader has only good investments.  There is nothing wrong with that. You don’t have to be always right. You need to be better than average market participants.

You can have 9 bad bets and 1 which paid off for all of them. Shift your focus from position management to portfolio management. Choose your evaluation period. Don’t check your portfolio returns every hour. Short-term variability is not manageable. Focus on the term period.

You are not diversified

When there is anxiety in the market, diversification is most important. It may be too late to do this when you are anxious about the state of the market. Adapt the degree of diversity to your risk tolerance and appetite. Also, estimate how much time will be needed to manage these positions.

Diversification is not holding a bunch of different cryptocurrencies. The majority of them are correlated. You should own a variety of digital assets in addition to crypto tokens. Stablecoins, digital gold, and synthetic assets come to mind. Also, take into account various blockchains for holding these tokens.

There is an offline world

We don't actually reside in the metaverse. During a bull market apex, Apple was worth more than the whole cryptocurrency market. We still have time. Even if you believe in cryptocurrency, don't put all of your money in it.

Boost your portfolio by including bonds, gold, equities, or real estate. Learning the fundamentals of conventional finance is also a smart idea during a bad market. You may still be a passive investor even if you are not an expert in stocks. Start with diverse industry and regional ETFs. When you discover your market advantage, switch to active investing.

Your altcoins never reach ATH again

Most of the time, speculation drives token pricing. Most of your projects don't have any use cases. Most likely, your tokens also won't make a difference in the real world. Most initiatives are motivated by marketing rather than actual use. Recognize the factors that contributed to the demand for your tokens and the potential future buyers. The basis of the crypto investment is tokenomics.

This frequently distinguishes between wise and foolish investments. Snapshots of the top projects for each week are available on Coinmarketcap. Look at how rapidly the story changes. The price is almost always declining and many projects are now forgotten. Why it will be different with your tokens?

The market moves in cycles

We are aware of it, but we are unprepared. Momentum drives the majority of decisions. Since the price is increasing, will it continue to do so in the future? Don't extrapolate from previous weeks. Your charts can fool you. Observe market trends and the larger picture.

Every week, determine the worth of your portfolio and ask yourself, "How much can I lose?" and “Am I prepared for a bear market?”. You may profit from the upcoming bull market with the aid of these instructions.

This is time to learn

Bull markets are insane. Every day, new projects are launched. New farming prospects are also being presented to us. FOMO is incredibly simple to experience. Bear markets are sluggish. With ICOs, projects would rather wait until better times.

Additionally, DeFi yields are far less volatile and lower. A moment for learning is now. Learn new meta-skills, revise your plan, and identify emerging trends. Even if the next bull market never materializes, you will always remember this information.

You don't understand what you are buying

Each token has a project attached to it. If there isn't a token for this project, will you still invest directly in it? The majority of individuals are unaware of their investment.

Only in a bull market is this effective. Consider this to be your project (you are the CEO). How will this alter your viewpoint? What are the project's advantages and disadvantages? What about chances and dangers? Better comprehension leads to better financial choices.

Most projects work only during the bull market

Most cryptocurrency projects use DeFi. Even the majority of games are simply gamified extensions of the payment system. The following conditions are necessary for DeFi initiatives to succeed:

  • an inflow of new cash to crypto,
  • many tokens swap.

The whole DeFi technology is powered by these two operations. In a bull market, this is profitable. Profits are substantially less during a bad market. Check out this project, as an illustration, to compare the revenue during several market cycles.

Stablecoins are not equal

Never presume that any stablecoin is secure. They carry greater risk than money. You want to maintain a diverse portfolio of stablecoins in various:

  • Tokens
  • Protocols
  • Chains
  • Strategies

UST is a prime illustration of this. We also saw many bridge hacks. Your whole earnings might be wiped out by a lack of diversity.

Understand your mistakes

Everyone is making mistakes. The distinction is that it may be applied by those who are successful. The following categories apply to all errors:

  • Analytical/Cognitive (too little information, incorrect information, wrong analytical process)
  • Emotional/Psychological (greed and fear, ego and envy, willingness to suspend disbelief and extrapolate past)

Use this to investigate the root reasons for your prior errors. Create an investing diary if you don't already have one. To become a better investor, you will be frequently evaluating it.

Project Value = Story + Numbers

Every metric we employ in a valuation (TVL, Tx number, user growth, etc.) must be based on a narrative about the project. Every detail we mention about a project, such as its incredible staff, outstanding platform, or wonderful community, must be represented by a number.

Most individuals only pay attention to one element of this equation. Some people are simply posting figures out of context from other sources. Others invent stories about how this undertaking will alter the course of history. You cannot become a successful investor with either choice.

Fundamental vs technical analysis

The relative merits of fundamental and technical analysis are always under discussion. If you know how to utilize them, both may be effective. Are you a trader or an investor? Select your team. The short-term fluctuation of value could not be explained by the basics of fundamental analysis.

Technical analysis can be effective because market players frequently base their judgments on emotions and because prices represent all available information. Fundamental analysis, on the other hand, works in competitive marketplaces. The general agreement is that yes, but over a longer period of time.

You don't have an investment strategy

Buying low and selling high (contrarian) or buying high and selling even higher (momentum) is not a strategy. How would you choose these pricing ranges? You need a different approach to do this. A strategy is a framework you can use to get where you want to go. Establishing and managing your portfolio is one of these objectives.

Consider carefully why you have been involved in the cryptocurrency industry as well as your goals and desired outcomes. You are especially guided by strategy during these unsettling times.

You are not managing your portfolio

If you have too many positions you won't be able to manage them, especially during bear markets. Portfolio management can be simplified using dedicated tools.


I also use Excel to track all my investment (not just crypto) in one place.

You are not managing your risk

Most investors think that they have a higher risk appetite and capacity.

  • Risk capacity - The total amount of risk that you can tolerate
  • Risk appetite - The degree to which you will embrace negative risk in pursuit of your objectives

If you look at how you responded to changes in your portfolio, you can quantify your risk tolerance. The investing diary is again your friend in this situation. Check also Risk Management 101.

What Next?

In future posts, I will discuss the new process Cryptocurrency Investment Framework.

Stay tuned and follow me on Twitter to get a sneak peek of what is coming!


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