The aforementioned developments hold the potential to kickstart a bear market in the crypto industry that can last from a few months to years. Unlike a bull market where virtually every trader seems to make plenty of easy money, a bear market is notoriously unforgiving to its traders.
Therefore, it becomes important to be prepared for a prolonged winter in the crypto market when liquidity dries up across the board and many projects begin to die out.
In this article, we will discuss the top 3 ways that you can survive a crypto winter. These strategies will not only help you preserve your capital but also provide you the opportunity to make decent passive gains on your holdings.
So, without further ado, let’s jump right in.
Yield Farming on DeFi Protocols
One of the most significant offerings of decentralized finance (DeFi) is yield farming.
For the uninitiated, yield farming refers to the process of depositing digital assets in a DeFi protocol and earning rewards in exchange of providing liquidity to the platform.
During the start of yield farming in 2020, DeFi protocol users benefitted from astronomically high APYs ranging in thousands of percent. With time, however, these APYs have become more connected to reality as the popularity of yield farming has spread.
When the bear market comes, expect the current APYs to draw further down but still sit comfortably above the rates that any traditional bank or financial institution offers on savings.
The best way to benefit from yield farming is to deploy stablecoins on the top yield farming optimization protocols such as Yearn.Finance, Curve, Bancor, and others. If using the Ethereum blockchain is not feasible for you, consider using alternatives such as Solana and Avalanche that have their own developing DeFi ecosystems.
Note that you must only deposit stablecoins for yield farming as depositing any protocol token could be a disaster during a bear market due to weak demand, low liquidity, and lower price.
Despite the relatively lower APYs during the bear market, one can expect the rates to be significantly higher than those offered by any bank in the developed world.
Staking Fundamentally Strong Tokens
Another good way to survive a prolonged crypto bear market is to stake fundamentally sound tokens.
Now, it’s completely subjective to determine which coin is fundamentally strong and which is not. However, a category that can easily be removed from the conversation is meme coins such as Dogecoin, Shiba Inu, Floki, and others. Most likely, meme coins will not survive a bear market and eventually become obsolete.
A reliable parameter to determine a fundamentally strong token is to see whether it generates constant cash flows without diluting its total token supply. Some examples of such tokens are Ether (ETH), Polkadot (DOT), Uniswap (UNI), and Terra (LUNA), among others.
If you already hold a decent bag of the aforementioned coins, consider staking them to increase the protocol’s security and earn staking rewards in return. For instance, ETH can be staked into the Ethereum protocol via Lido DAO while DOT tokens can be staked into the Polkadot network via Fearless Wallet.
The longer the bear market runs, the higher your staking rewards will be, which will eventually skyrocket again with the onset of another bull market.
Trying New Protocols
This approach to make money during the bear market does not require you to have a lot of capital at hand. The idea behind trying different protocols soon after their launch is to be eligible for their eventual token airdrop.
In 2020, Uniswap airdropped 400 UNI tokens to all users who ever interacted with the protocol’s smart contract. At current market price, 400 UNI tokens are worth almost $20,000.
Similarly, in 2021 we saw layer-2 crypto derivatives platform dYdX and Ethereum Naming Service (ENS) airdrop significant amount of tokens to their respective protocol users.
A similar approach can be followed during a bear market. Consider exploring new applications, protocols, making token swaps, and providing liquidity on new protocols that give you a chance to win attractive airdrops.