The past year has been quite a ride for Bitcoin and cryptocurrency investors — especially millennials. The crypto market hit its lowest point of the year last month, losing over 70% of its value from its high in January. Since then, it has recovered over 20% in the past month.
Millennials who are less familiar with bear markets may feel particularly unsure of how to handle this new and volatile market. Most millennials were just entering the job market during the recovery from the 2008 financial crisis. While they know how bad it can get, they are less experienced with navigating a market experiencing this type of change.
In reality, this explains a degree of crypto’s volatility. Currently, 58% of cryptocurrency investors are between the ages of 18 and 34. This should not come as a surprise as studies show that 7 out of 10 millennials are likely to consider non-traditional financial offerings.
While millennials are new to bear markets, they are the generational users of choice for crypto.
Upside of a Bear Market for Millennials
While the current trajectory of Bitcoin and other cryptocurrencies may seem concerning, it actually presents opportunities for the savvy millennial investor. It also is not the most severe bear market crypto has experienced and recovered from. From late 2013 to June 2015, Bitcoin prices dropped 82% to only $255. It then recovered to reach a high of $19,600.
Neither this past trend nor the current bear market are going to last forever. In fact, according to Azzad Asset Management, the average bear market lasts 15 months and it only takes an average of 10 months for the market to fully recover its value.
For millennials with the financial ability to adopt a more aggressive, long-term investment strategy, the current bear market could present a chance to grow their investments and see strong benefits further down the line.
Learning the effective way to invest in a bear market can help ensure you don’t waste your investment and give you the long-term strategies necessary to come out of the crypto bear market on top. Here are 3 tips for millennials navigating the crypto bear market.
3 Tips for Millennials Navigating the Crypto Bear Market
1. Research Crypto Trends and Understand Key Indicators
The best way to know how to handle fluctuations during a bear market is to do your homework. While others are panic selling and making decisions based on emotions, you should be able to perform a technical analysis without getting emotionally involved.
According to a LinkedIn and Ipsos 2018 survey, millennials are more likely to take into account social media input and presence, personal relationships with companies and feedback from friends and family when making investment decisions. While these factors don’t need to be completely ignored, they may not be the best indicators of a coin’s behavior.
Study indicators of crypto price movement such as relevant news articles, new laws and regulations and movements from significant crypto investors.
For example, on June 9, reports were released stating the US Commodity Futures Trading Commission (CFTC) demanded trading data from several cryptocurrency exchanges to investigate the possibility of compromising prices in digital currency markets. This caused a significant dip in the price over the next 24 hours but was not ultimately a cause for alarm.
Rather than focusing solely on these less subjective ways to analyze investments, familiarize yourself with methods of technical analysis. One tool is the ability to understand a coin’s moving average, which indicates the average price over a period of time. This average can help you put the trends you’re tracking into perspective and help you avoid getting distracted by random price fluctuations.
2. Diversify Asset Types and Investment Lengths
Diversifying your portfolio is critical in any market, but it is extremely important during a bear market. As far as crypto is concerned, many millennials see it as a great option for diversification. In fact, 20% of investors see crypto as a hedge against crashes in traditional assets.
However, not enough millennials consider as many aspects of diversification as they should. Here are a few diversification strategies to keep in mind:
Diversify Within the Crypto Asset Class
While most see cryptocurrencies as a good addition to a portfolio that combines crypto with traditional investments such as stocks and bonds, most neglect to diversify within the asset class. There are many different crypto investments that all represent different levels of risk and outlook.
Here are the main crypto investments to consider including in your portfolio:
- Coins – Choose a mixture of steady coins such as Bitcoin and Ether and altcoins that have a higher growth potential.
- Tokenized Assets – Traditional asset classes such as real estate are becoming tokenized, offering increased liquidity and a lower barrier to entry while still presenting the same steady growth potential.
- Initial Coin Offerings – ICOs are potentially the riskiest crypto investment. Make sure you do your homework and only invest in tokens from companies that have a strong reputation and a clear model for how their coin will present value to investors.
Diversify Between Short and Long-Term Investments
In addition to diversifying asset types, look to create a portfolio with a strong mix of short and long term investments.
While many crypto investments during the bear market will require you to play the long game, there are opportunities to make short gains. Scalping is one example of a riskier strategy that takes advantage of small price movements which can result in profits during a bear market.
Choose a mixture of investment types that fit your risk aversion but consider putting at least some percent of your portfolio in shorter term, high yield investments.
3. Prepare for Market Fluctuations
No matter how well educated and prepared you are and how diversified your portfolio is, the cryptocurrency market is an extremely volatile one. You must be prepared to handle regular market fluctuations in order to survive the crypto bear market.
Unfortunately, 75% of millennials in the U.S. have some form of debt. What’s worse, 25% are in over $30,000 worth of debt. This makes it difficult to stick to your investment plan during low times in the bear market.
If you are counting on short-term gains to help you out of debt or are unable to let investments mature, you will not be as successful at making it through fluctuations in the market.
Sometimes, the best response to a drop in the market is to do nothing at all. In may be difficult to “play dead” and resist the urge to pull out investments or try to break even through another, riskier investment. Taking a hands off approach to your crypto investments can help you avoid panic selling and ride out the fluctuations.
In the cryptocurrency market, fluctuations are unavoidable. The fact that we are experiencing a bear market is also unavoidable. The choice millennials and all crypto investors have is how to respond to this market. By becoming a savvy, educated and prepared investor, millennials are perfectly poised to come out of the crypto bear market in the best position possible.
Disclaimer: Virtual currency is not legal tender, is not backed by the government, and accounts and value balances are not subject to consumer protections. This article is for informational purposes only, and is not financial advice. The information does not constitute investment advice or an offer to invest.
Contributed by Kirill Bensonoff
Kirill Bensonoff is a successful entrepreneur with multiple exits, blockchain investor and advisor. He’s also the host of the Boston Crypto Meetup, founder of the Boston Blockchain Angels and leads the Blockchain + AI Rising Angel.co syndicate. Learn more by visiting www.kirillbensonoff.com and follow him on Twitter @prankstr25.