Fact: bear markets are inevitable.
Another fact: many investors sacrifice significant sums due to panic selling.
Every market has its share of highs and lows; the cryptocurrency market is no different. Even if you flipped millions in a bull market, there’s always the fear of a forthcoming bear market. In both stock and crypto markets, a bear market references a prolonged period of negative returns, usually when the price of assets retrace lower at least 20% from recent highs.
When the crypto market crashes, investors can be grouped into three main categories:
- The panic sellers – This group characterizes retail traders who start selling at the slightest indication of a market crash
- The professional traders – These more sophisticated actors buy dips, sell them, and flip millions during bear markets
- The in-betweeners – These “investors” with a vision HODL assets they believe in, which usually works in their favor over the long-term
But is HODL-ing during a bear market enough?
If you keep holding onto your assets, they will just remain in your wallet without any returns. You can only generate positive returns when the market changes in your favor.
With the continued ascent of decentralized finance (DeFi), many savvy investors are expanding their portfolios during bearish runs by leveraging the broad range of DeFi products and services. These visionary investors yield passive returns during bear markets by putting the assets that would otherwise remain idle in their respective wallets to work.
Here are some ways you can boost your portfolio while you HODL during a bearish run.
DeFi To The Rescue
The introduction of DeFi has unlocked several opportunities for crypto investors to maximize their potential returns. With hundreds of new platforms and protocols active in the space, expanding your portfolio in the DeFi universe has never been more straightforward.
DeFi is for everyone, but there are a few key strategies that you should consider choosing from before starting your journey. Here are four proven DeFi strategies to grow your portfolio during bear markets:
- Join Lending and Borrowing protocols: The DeFi market can help users borrow via collateral-backed crypto loans. If you are holding tokens, lending them out to interested users is one way to deliver passive returns. Popular platforms like Aave and Compound have helped investors expand their portfolios, even when digital asset prices decline. Moreover, DeFi protocols make the entire process transparent while eliminating intermediaries from the equation.
- Participate in liquidity mining: Also known as DeFi mining, liquidity mining isn’t the same as bitcoin’s proof-of-work (PoW) mining. As part of this DeFi product, you can pair your assets and store them in a platform’s liquidity pool. For instance, if you pair ETH/BTC and add it to a pool, it will increase the overall liquidity, enabling seamless trades between other DeFi users. In exchange for adding liquidity to a pool, you’ll receive a return in proportion to your contribution.
- Start yield farming: Yield farming is the most popular way of generating returns on your existing crypto assets. It is also the most flexible approach to ensure passive income. All you need to do with yield farming is deposit your crypto assets into smart contract-based liquidity pools. Once locked, other users from the same protocol can borrow these assets. In exchange, you’ll earn crypto rewards, calculated in APY (annual percentage yield).
- Stake your tokens: Another proven way to increase your portfolio is by staking your assets in blockchain networks that use the proof-of-stake (PoS) consensus mechanism. Tezos, Ethereum, and Cosmos are some well-known platforms that offer users the option to stake native tokens and earn consistent revenue in exchange. Ideally, staking is open for anyone who can participate if supported by the underlying blockchain network. Even if you don’t have the number of tokens required to be a full node validator, you can invest an amount you can afford through exchanges like Coinbase and Binance.
- Add your tokens into savings accounts: Like traditional finance, DeFi also allows you to earn a return from tokens you already hold. Several exchanges have recently introduced crypto savings accounts for their users, each with varying interest rates. Take, for instance, the AAX savings account, which offers as high as 60% APY alongside flexible lock-in periods. If you don’t wish to get into the technicalities of liquidity mining, yield farming, staking, or other similar on-chain options, transferring the tokens you’re HODL-ing to a savings account is your safest bet to ensure that your assets don’t just gather dust.