Due to the instability and high volatility of the cryptocurrency market, we have endless earning opportunities in investment and trading. That is probably the main reason so many people think about joining this field and buying digital assets. However, market volatility means that cryptocurrency exchange rates can rise or go down, making crypto trading the same risky as profitable.
There are many different strategies that allow earning money on both dropping and rising trends. If everything is simple and transparent with the growing trend, then how to make a profit when the cryptocurrency price is dropping? The answer is to go short. Short means to sell out coins before the market drops and then to repurchase the same amount of coins at a lower cryptocurrency exchange rate.
Let’s see what happens with the market during the best trend.
What is the Downtrend?
While a bull trend means cryptocurrency exchange rates growth and total euphoria about this field, when even those who never had any crypto strive to buy it immediately, inspired by crypto quotes boost in real-time, a bear trend means the reverse situation. The last time when the market lived through the bear trend was spring of 2022, when amid the coming world crisis and bad news background, cryptocurrency exchange rates started to drop sharply, losing their value day by day. This period is also called “crypto winter”, meaning an entire decline in crypto quotes and a collapse as a result. The reason is that many young and not established crypto projects are simply unable to survive during the considerable drop. Thus, “crypto winter” filtres strong and weak projects, leaving only established and trusted on the market arena.
The demand and supply ratio is crucial in the crypto market. When the balance is ruined on any side, grand processes start to take place. So, when the number of sold crypto exceeds the number of bought, crypto investors realize it, and it happens like a snowball effect – they start to get rid of their holdings with the fear that their value will drop even further.
We can divide this process into the following stages:
- Preliminary. As soon as the cryptocurrency exchange rate reaches its peak mark, the first symptoms of the bear trend appear. Investors are still pretty optimistic and waiting for the market to recover after the first pullback.
- Early. The cryptocurrency exchange rate shows several drops but quickly recovers, which makes investors believe the quote will still reach its previous high level shortly.
- Full scale. The price drops more and more without recovery. Investors do not witness any significant increase in the asset value and lose hope for its comeback to the previous peak. So they start to sell their holdings in-masse.
- Late stage. The cryptocurrency exchange rate reaches new bottoms as panic in the market is ongoing, and supply significantly increases demand.
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