How to Survive a Bear Market

The year has not started well for crypto investors. Many of you will be trapped in the falling market and unable to cash out without incurring heavy losses. According to data from Intotheblock, 28% of Bitcoin investors and over 31% of Ethereum investors are in a situation where the assets are worth less than they paid for them.

The question most would like an answer to, is how can I survive this? Here are a few suggestions.

  1. Use dollar-cost averaging

If  you have stablecoins or fiat, you can buy the dip. But when you do, the most recommended strategy is to implement something called “dollar-cost averaging (DCA).” For example, let’s say you have $1,000 in reserve funds. A good DCA strategy would be to break up the amount into five tranches of $200 or even 10 tranches of $100 and place trades using those smaller amounts. So, instead of spending all your money in one go, it usually works out better to buy a small amount and wait to see if the asset falls in price further. If it does, buy a little more, and so on.

  • Diversify your investments

One way to hedge your bets is to use DCA for a range of different crypto assets. To choose your assets, look at the following: 1. Previous all-time-high; 2. Past performance and 3. Future roadmap announcements.

You should also look at whether an asset is considered to be ‘overbought’ or ‘oversold’. If an asset is deemed to be ‘overbought’, it means that its price is considered to be too high and that it will fall soon. If it is oversold, its price is considered to be undervalued, and that is usually a sign that prices will rise soon.

  • Don’t panic

In a bear market, you really need to manage your emotions as much as your money. Fear and greed can lead to investors making foolish, snap decisions that result in losses. Greed, for example, often leads to investors staying in a a trade beyond your take profit level in the hope the asset will rise even higher in price. What you need to do is set a stop for losses. Basically, take profits when you can and don’t panic when the bears arrive!

What is ETH2 doing on Coinbase?

Coinbase users might be somewhat confused to find there appears to be a new ‘coin’ listed on its crypto price index called ETH2. It is listed as having the same price as ETH, so what is it and why is it there?

According to Yash Gola at Cointelegraph, this ETH2 is a “mirrored version” of ETH, and he believes Coinbase has added it ahead of a key Ethereum network upgrade that is to happen on 10th December. One Twitter user questioned if Coinbase is promoting it as a new coin, but it can’t be that, because the exchange has no data for it regarding Trading Activity, Popularity Score, or Typical Hold Time. Instead, Gola answers, it’s function is to “track the ETH market data until at least mid-2022.”

He comments, “ETH2 seems to have been posing as the native token of Ethereum’s ongoing upgrade, dubbed Ethereum 2.0,” which is expected to go fully live by June 2022. Although there may be an alternative reason for listing it, given that a fork called ‘Arrow Glacier’ is scheduled for implementation ahead of that, with the function of making it easier for developers to prepare for Ethereum 2.0.

The Arrow Glacier is intended to delay “an incentive hardcoded inside the Ethereum blockchain since its launch in 2015, which would make it difficult for people to mine ETH.” This ‘incentive’ is also being called a ‘difficulty bomb’, because if it were triggered, it would excessively slow down the Ethereum network while it remains a proof-of-work blockchain.

Tim Beiko, one of the core developers working on the Ethereum upgrade, noted that Arrow Glacier might be the last upgrade before Ethereum 2.0, aka ‘Serenity’ goes live next year. Ethereum 2.0 will enable the big transition from energy-intensive proof-of-work (PoW) to proof-of-stake (PoS). It will use ‘sharding’ which divides the network into various segments (called shards) and randomly assigns nodes to each shard. This will improve the speed and costs required to maintain the network. The Beacon Chain, which is the backbone of Ethereum 2.0, will validate the transactions on each shard, thus assisting the entire Ethereum 2.0 network in reaching consensus.

And then this is where ETH2 comes in. It is likely to serve as a staking token for validators on the new PoS network, so they receive block rewards. As Gola points out, “Beacon Chain’s deposit contract has received over 8.42 million ETH tokens from 55,300 unique depositors (validators) since its launch in December 2020.”

But ETH2 is not a new digital asset, it’s more like a placeholder for when Ethereum fully transitions. It is also possible, indeed very likely, that ETH2 may end up becoming a rebranded version of the original ETH, “without needing holders to swap one version for another.”

So now you know what ETH2 is on Coinbase!

The Bitcoin bounce back

At the end of last week a new Covid variant appeared called Omicron. As a result, the cryptocurrency market experienced a sell-off on Friday 26th. It wasn’t the only market where panic had set in. But by the end of the weekend, we had seen some confidence returning as traders realised that it was likely there would be no return to full lockdowns this time round.

Yesterday, Monday 29th November looked very promising. Digital assets were mostly back in the green, although as Billy Bambrough points out, Bitcoin appeared not to be leading the market in this bounce back. Instead it was noticeable that the assets rebounding most strongly were Ethereum (ETH), Solana (SOL) and Polkadot (DOT) showing higher gains of around 7%, while Bitcoin (BTC) was somewhat lower at +4-5%. But there were still several wins for Bitcoin along the way.

El Salvador buys ‘discounted’ Bitcoin?

As Bitcoin dipped to $53,000 some were ready to buy the dip. Nayib Bukele, El Salvador’s “bitcoin-besotted” president was one of them. He announced to the press that his country had bought another 100 Bitcoins during the dip at the end of last week, adding to El Salvador’s stash of 1,000 BTC. Luckily for Bukele and his country, Bitcoin rallied after he’d made what he referred to as his ‘discounted’ BTC purchase, so he must be happy at least.

However, Bambrough points out that there Bukele’s buy should be noted, because he is “is doubling down on bitcoin in the face of international warnings and condemnation.” What is this about?

Well, last week plans were announced for a $1 billion bitcoin bond. This is supposed to fund an ultra-low tax city. However, it had the effect of sending El Salvador’s dollar-denominated bonds to an all-time low, and gave the country a debt profile that is even worse than that of Lebanon. In fact, it’s the worst in the world now. The Bank of England governor had warned last week that the “country’s decision to adopt Bitcoin as legal tender alongside the US dollar was concerning because people could be caught out by its volatility. He couldn’t believe that a country would choose Bitcoin as a national currency he told Cambridge University student union. He also told the assembled students that the IMF was really not very happy with El Salvador.

Did Microstrategy power the bounce back

But El Salvador’s purchase of 100 BTC was nothing compared to Microstrategy’s announcement that it had acquired 7,002 Bitcoin on Monday at an average price of $59,187 per coin. It’s an announcement that pleased the bitcoin bulls, as did the one from the German stock market operator Deutsche Boerse, which is listing the Invesco Physical Bitcoin, an exchange-traded note (ETN).

And in other good news for Bitcoin supporters: over the past week, the Bitcoin network has transferred or settled an average of $95,142 of value for every $1 worth of fees. This means the network’s value settlement efficiency has been improving steadily recently, with more being settled for lower fees. On-chain analyst, Dylan LeClair, tweeted, “Bitcoin is the most efficient monetary settlement network the world has ever seen.” Despite its recent ups and downs, Bitcoin is here to stay, and it’s still a digital asset with enormous influence, even if a handful of altcoins occasionally deputize as market leaders.

Is Ethereum too expensive?

I’m not referring to the Ethereum token (EYH), but to the gas fees associated with using the Ethereum blockchain, the main ‘go-to’ for DeFi. Will Gottsegen in a fine opinion piece for Coindesk quotes a crypto investor named Zhu Su who pulled no punches last weekend, when he tweeted, “Yes Ethereum has abandoned its users despite supporting them in the past. The idea of sitting around jerking off watching the burn and concocting purity tests, while zero newcomers can afford the chain, is gross.”

Before we go any further, Gottsegen says we should be aware of the fact that Su is a founder of investment firm Three Arrows Capital, which is betting big on an Ethereum competitor called Avalanche. So there is an agenda behind Su’s attack on Ethereum, but he may have a point about the gas fees.

If you want to use dapps, explore DeFi protocols, or get in on the NFT (non-fungible token) trend, you will eventually come up against Ethereum’s fees which – at this point in the development of the blockchain – can be shockingly high, as Gottsegen says. He points out that minting an NFT on Ethereum will generally cost between $60 and $250, depending on the time of day and the stress on the network. And the more users there are competing to get their transactions through, the higher the fees go.

Gottsegen describes his own experience when he tried to swap “about six cents worth of ETH for 50 Pisscoin”, the latter being an Ethereum-based token he was researching for a story, only to be told “I would need to pay an additional $616.10 for a transaction that might clear in about 40 minutes.” What is more, if the transaction failed the fees would be lost forever, as is the case with crypto.

Of course, Ethereum has its many defenders. Crypto venture capitalist Chris Dixon, whose company, Andreessen Horowitz, is heavily invested in the Ethereum ecosystem replied to Su’s tweet suggesting that the network is still in its infancy, and that infrastructure may eventually make things cheaper and easier to use.

But at the moment infrastructure is minimal. Polygon, a so-called “layer 2″ scaling product built on top of Ethereum, is designed to make fees a little cheaper. Other networks, like Solana, are betting that users may just ditch Ethereum altogether.

Gottsegen concludes by saying, “As it’s now set up, Ethereum is like a poker table with a high buy-in. Everyone else will have to wait for a cheaper option.”