Why does a bear market make traders rich?

The bear market is commonly referred to as a red season where people lose money as all crypto coins lose value. However, this is a myth as most traders make more profit in a bear market than in a bullish market.

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Jay Crypto

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Last updated Sep 5, 2022 at 3:57 PM

Posted Sep 5, 2022 at 1:00 PM

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Bear market vs Bull market:

A bear market in crypto is the one in which the price of Bitcoin continuously drops. Contrary to this, a bullish market is one in which the price of Bitcoin continuously rises. Since Bitcoin is supreme and steers the whole crypto market, Bitcoin is used as a reference for the entire market.

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Bull vs Bear Market

Bear markets have always been good for crypto as many top projects were built in bear markets. Binance, for example, was developed in the bear market of 2017 and now it has become the largest crypto exchange in terms of trade volume.

We are in a bear market now and those who saw it coming have made a huge profit. The investors might be facing a hard time as Bitcoin devalued over 70% in recent months; however, the retail traders seem to have been enjoying the red bath. How do they make money in a bearish market?  Let's take a deep dive.

Making a profit in a bear market:

  1. Short Position:

Crypto future is a tool used by experienced traders who use high leverage and earn thousands of dollars with minor price movements. In crypto futures, traders buy a coin at the future price and if the price of the coin reaches that level within a specific period, the trade ends in a profit. For example, if Bitcoin is trading at $30,000 and I believe it might slump to $28,000, I’ll ask the exchange to sell 2 Bitcoins for $60,000 on my behalf which I will return in x number of days. After some time, the Bitcoin price reaches $28,000, so I’d buy 2 Bitcoins for $56,000 and return them to the exchange. The $4000 difference, after some fees, is my profit.

The leverage system makes the futures even more intriguing. The buying power of the traders increases with the use of leverage. Using just 2x leverage gives double buying power, though it increases the risk factor, too. If the price of a coin moves against your position, the swing might liquidate you.

Retail traders who open short positions when a bear market is anticipated bag profits. They usually use strong technical indicators and keep an eye on the news and events to spot an entry point to make a profit. Since Bitcoin has been sliding down from its ATH of November 2021, these retail traders have had more chances to grab as much profit as they can through Short Positions. 

You can track the long vs short positions of any coin to learn about retailers’ sentiments across all the major exchanges.

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Bitcoin long vs Short Position

Crypto futures expose your funds to higher risk. These trades are only opened by experienced traders who can back their positions with huge liquidity.

  1. Call Options:

Crypto Options is a highly rewarding yet risky trade. Traders can sell any coin at a fixed price (strike price) by paying an initial amount called the premium. The price must hit the future price before reaching the expiration date. Unlike futures, the invested amount (premium) gets reduced as time passes. As time goes on and the target price is not hit, the premium keeps consuming until it defaults to your position.

Call options are used in bear markets to bag more profits through call (sell) trades. Like crypto futures, Options involve high risk and should be used only by experienced traders.

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Binance Options Interface

Bull and bear markets are two cycles of price movement and how to get profit out of those price movements is the real task. Investors cannot benefit from the downward movements of the coins, but traders can.

Having a good grip on the technical analysis can be a plus as you can spot the sport and resistance of the timeframe you are trading in. Often the market is controlled by the market makers and retail traders; in such situations, technical analysis plays a major role in the success rate of the trades.

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