Lessons Past Bear Markets Taught Us | Opinion

Charlie Taylor

The bull run that started in 2020 brought many new investors to the markets and in 2021 we saw huge valuations on the stock exchanges and exorbitant gains in the crypto world. Generally, these moments of euphoria in the markets are very bad education for newcomers, who end up overestimating their investment knowledge, taking excessive risks and believing that they can predict the direction of the markets. Now that we have entered the most rigorous phase of the bear market and some lessons will be learned, it is worth revisiting past bear markets to understand which mistakes made by investors at that time are also being made by the new generation. In 2008, many investors overestimated their risk tolerance, and market movements made many of those with a 30-year investment horizon hostage to 30-day movements. For most of them, the stress of high volatility and the noise of market news made them abandon their investment plans. Much of the success of investment strategies lies in the ability to ignore the concerns and anxieties that are disseminated on the networks and in the news. Peter Lynch, the world’s leading investor, once said that “when it comes to investing, the most important organ is the stomach. Not the brain”.

behavior patterns

Today we are experiencing the third bear market in the world of crypto-assets – the first began in 2014 and lasted until mid-2015, while the second lasted from 2018 to mid-2019. Although the history of cryptoeconomics is very short, it is already possible to identify some patterns of behavior in this universe. If we take a picture of the main assets of this market in 2014, 2018 and 2022, we will see that many projects emerged and others simply disappeared. Because it is such an experimental and volatile environment, investors must dedicate themselves to understanding the fundamentals of projects that have survived previous cycles, in addition to mastering the main macroeconomic fundamentals that affect the expectations of large investors. Each cryptocurrency business cycle brings a new narrative and a new portfolio of projects. At a time of appreciation and speculation, it is easy to be attracted to this market, but the history of declines shows the ruin that movements can cause in investors’ portfolios. Those who survived past bear markets were investors who set aside a volume of cash to buy well-founded assets, and the biggest foundation is in the main asset, Bitcoin (BTC). The investor needs to be very patient and categorically avoid making hasty decisions and exposing too much in altcoins. In fact, one should even avoid increasing exposure to altcoins and, above all, not making investment decisions based on what is said and shared in crypto groups or communities. Another important point is not to take leveraged positions: the crypto market is more difficult than it looks and the low liquidity of bear markets favors manipulation. If the investor leverages himself in the markets he can be easily liquidated in these traps.

About the author

Lucas Passarini is a Bitcoin Market trader

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