Last edited: Dec 8, 2021

We bear witness to a large market correction with strong bearish sentiments the past month or so, since the second week of November. Thus, it seems like a good time to discuss how we want to construct our portfolio in a crypto bear market, in the case that the bear market extends beyond the current state, so that we make sure our investments could withstand another large decline in prices.

Risk/Reward

In a bull market, you could get significantly rewarded with a gamble on a small, relatively unknown blockchain project, or a meme coin (e.g. SHIB, DOGE). Returns reach up to 100x for these types of high risk investments.

However, most meme coins and small crypto projects end up with 0 in their intrinsic value, and only the ones that made it would get coverage in the media. Thus, it is extremely risky to invest in these speculative small-cap coins.

On the other hand, you will not be exposed to the risk of small-cap coins, since we only trade future contracts of large cap, reputable crypto coins on our platform. It is key to balance your portfolio with low-risk investments such as Bitcoin and Ethereum, and mix it up with higher risk investments, such as high leverage future contracts and lesser-known crypto projects with high potential.

Diversification

For any solid portfolio in any form of investing, diversification is crucial, and the same applies to crypto investing. Even though crypto coins are generally strongly correlated in terms of price movements, nuanced differences between various blockchain projects would result in different growth rates and non-systemic risk exposures across the coins invested in the portfolio, and thus the more types of coins owned in a portfolio, the less exposed it would be to a single catastrophic event occurring to one particular coin.

We can diversify our portfolios in many ways, including classifying coins according to the purposes of their respective blockchains, splitting coins into different market cap classes, or separating coins into two sections of growth/stable, and then investing in a bit of each from the two sections.

Recommended Coins

I recommend that before making any investment decisions, make sure you are well-informed about the coins you plan to purchase, and that you have conducted your own research and arrived at a multi-faceted decision. 

However, if I were forced to recommend coins that I see to be quite profitable even in a bear market, I would be looking at Bitcoin, Ethereum, and Decentraland.

Bitcoin is the first cryptocurrency, the most widely adopted cryptocurrency with the largest user base and highest market cap. Even in a bear market, Bitcoin would be the least affected by volatility.

Ethereum is also strongly recommended, since most dApps and use cases of smart contracts, NFTs, etc. are all supported by the Ethereum network. Given the massive institutional demand for Ethereum, it would also perform relatively well in a bear market.

Lastly, Decentraland, though not available currently on BTCC, is also recommended, given that metaverse seems to be the trend most traditional corporations are chasing. With the renaming of Facebook to Meta, and with more and more companies exploring the possibilities of extending business opportunities in the metaverse, such as Nike, Adidas, to name a few, Decentraland seems like a no-brainer as a hedge against a bear market. It already has shown its resilience over the past month, as it is up around 33% over the past 30 days, compared to the downward trends of all other major coins.

ETH price chart over past 30 days (daily intervals)