During cryptocurrency bull markets, there’s little you can do wrong. When everything goes up, even bad investments can lead to considerable profits.

However, history has proven that what comes up must come down. Remaining profitable during bearish conditions separates the beginners from the pros. The amateur trader will often lose money during a trend reversal, and even double down on their losses.

On the other hand, proper crypto portfolio allocation will make you retain your profits even in bear markets. Remember that: “Bull markets make you money, while bear markets make you rich.”

In this article, we will show you how to best detect bear markets. We also talk about the variables that determine your crypto asset allocation and how to make choices depending on bullish or bearish conditions. Let’s get started.

Introduction to Bitcoin supercycles and bear markets

Investing in cryptocurrencies has proven to be quite a profitable venture over the years. Buying Bitcoin in the long term has made many investors happy with their purchase, with a 1 million % increase in value in just over a decade.

However, the key concept here is “long-term”. On (more or less) regular intervals, Bitcoin and the crypto market experience a phenomenon usually referred to as the “Bitcoin Supercycle”.

These bullish market cycles have been linked to the bitcoin reward halving, as they usually appear shortly after this important event. During the next year or two, the cryptocurrency market usually undergoes a stark rise in value, as seen in 2013, 2017, and more recently in 2021.

Bitcoin supercycles

With that said, these huge price increases have always been followed by strong corrections. The bear market that ensues can cause the market to retrace as much as 80% from the supercycle top. Consequently, crypto investors might experience severe losses if they invest at a top of a market cycle.

For this reason, it’s essential that you are able to assess the signals that point out a turnaround into a bear market.

Top indicators that signal a bear market

Before we go further in detail about crypto portfolio allocation, let’s go over some of the best ways to detect an upcoming bear market. Please understand that these indicators can’t exactly pinpoint a market top. Instead, they can signal you the moment where you need to start being more cautious with your investments.

Market trends

In traditional markets, a 20% drop in the price of a certain asset or index is usually a clear indication that we are entering a bear market. However, in a volatile environment such as cryptocurrencies, things aren’t that obvious.

In the short term, even solid fundamental cryptocurrencies such as Bitcoin and Ethereum can experience sudden price drops within a bull market. This doesn’t necessarily mean that we have entered a bear market.

Let’s take the current situation as an example. The value of the cryptocurrency market has dropped more than 50% since the top experienced in May 2021. However, there’s still one crucial level of support that should be considered before we can safely assume we have entered a bear market.

If the value of the crypto market drops below the January 2021 levels, it will be a surefire confirmation that the trend has finally flipped into bearish momentum. Otherwise, the bullish momentum could resume and we could see new highs during this summer.

Market trends

Essentially, you should always try to make sense of the general trend of the market and consider the crucial support levels created by the preceding bullish cycle.

Market sentiment

Yet another indicator of an upcoming bear market is the overall market sentiment of the investors involved. It’s the investors’ psychology and sentiment that ultimately defines a market and how it behaves.

When prices begin to drop, investors tend to panic and some of them capitulate and exit their positions. This can result in cascading sell-offs that gradually increase the bad market sentiment and plunge the markets even further into bearish momentum.

There are multiple methods that you can use to assess market sentiment:

  • Track social mentions with data tracking tools such as LunarCrush, Cryptomood, and Santiment. Check out the video below for a tutorial on using Cryptomood.
  • Check the crypto Fear and Greed index.
  • Follow the news regarding cryptocurrencies and try to discern the amount of FUD (fear-uncertainty-doubt) narratives that are being pushed out by the media. 
  • Track whale transactions on Twitter that might signal upcoming sell-offs. For instance, a large amount of Bitcoin being transferred to an exchange could be a telltale sign of a big price dump. 

The bottom line is that it’s nearly impossible to predict exactly when a market top occurs and the momentum ultimately flips to bearish. However, by following the aforementioned indicators, you will be able to tell whether you are in a bull or bear market and act accordingly.

How to approach a bear market as an investor

So, you’ve established that we’ve entered a bear market or that a bear market is a strong possibility in the foreseeable future. The first thing to do before proceeding to a crypto portfolio allocation is to transfer most of your holdings into stablecoins.

Taking profits on the way up is always a good strategy to consider, as spotting the top can be quite challenging even for experienced traders.

What are stablecoins and why you should use them in a bear market

Stablecoins are cryptocurrencies that are pegged to traditional currencies like the USD or Euro and are backed by FIAT reserves. Consequently, these cryptocurrencies shield investors from crypto’s volatility in bearish conditions.

Yet another advantage of stablecoins is that they allow you to remain in the ecosystem, in case there’s a possible market entry. As soon as you feel prices have bottomed out, you can easily reenter some positions and start accumulating.

How to profit from stablecoins during bear markets?

With that said, stablecoins can still be a great way to build wealth while waiting for the right moment to invest. Below is a sample of what you can do with your stablecoins to gain some passive income in a bear market.

  • Crypto lending – lending platforms such as Celsius and Nexo act like a middleman between crypto lenders and borrowers. By depositing your stablecoins in an online wallet, you will be able to gain interest from your holdings, with an average rate of 3% across most platforms.
  • Liquidity mining – decentralized exchanges and peer-to-peer lending can provide additional steam of stablecoin income. These platforms function through liquidity pools that are provided by the users. Each time someone uses the services of the exchanges, a percentage fee is paid to those that provide liquidity.

Many cryptocurrency lending platforms, both centralized or decentralized, offer decent return rates for providing stablecoin liquidity. Moreover, they usually offer flexible lockup timeframes, allow you to withdraw your funds from the lending platform whenever you like.

Cryptocurrency portfolio allocation strategy for bear markets

Waiting out the bear market can be a decent strategy for beginner investors or people with low-risk tolerance. However, bear markets present incredible accumulation opportunities that could bring considerable gains even when prices go down.

1. Rebalance your portfolio for a bear market

Reducing risky positions should be your first move when entering a bear market. Getting rid of altcoins that might drop 90% should be a priority, and the profits should be put towards either BTC or stablecoins.

With that said, not all of your portfolio has to be transferred into stablecoins. As we covered earlier, spotting the peak of a cycle is not an easy thing to do. You don’t want to get trapped selling all of your cryptos only to see their price skyrocket shortly thereafter.

To avoid such an unfortunate event, a bear market crypto portfolio allocation is essential. First, it will reduce the risks of sharp price drops. At the same time, you conserve some of your long-term appreciating assets such as Bitcoin or Ethereum.

bear market portfolio

One of the best crypto portfolio allocation strategies for bear markets is the 60/25/10/5 ratio. Using this strategy, your portfolio should be divided a follows:

  • 60% in stablecoins, used for yield farming or lending. 
  • 25% in Bitcoin. 
  • 10% in Ethereum. 
  • 5% of funds reserved for altcoin trading.

2. Keep investing in strong coins with DCA

Most long-term crypto investors see bear markets as an accumulation period. This means that they are able to gradually increase their Bitcoin positions at a discount. Once the market has bottomed out, savvy investors can use dollar-cost averaging to slowly buy back more Bitcoin or other fundamentally strong cryptocurrencies like Ethereum or Binance Coin

This strategy consists of dividing your investments into multiple smaller purchases at regular intervals.

DCA is a great investment tool in crypto, especially when we take into account the ever-appreciating value of Bitcoin in the long term. It allows us to ease out the price curve and gradually negate the effects of sharp price drops or spikes.

With that said, even DCA can be even more effective if you know how to spot the best times for reentering the market. For instance, instead of sticking to your purchase plan, you could buy more Bitcoin at a market bottom, increasing your holdings even further in preparation for the next bull run.

A good crypto indicator for spotting bottoms is the 2-year MA multiplier. This long-term indicator highlights the optimal timeframes for investors to reenter their positions and begin accumulating.

strong coins

3. Trade hyped up coins on the short term

We established that during a bear market, your goal should be to increase your Bitcoin and/or Ethereum holdings.

In addition to slowly redistributing your stablecoins into Bitcoin, you can gradually increase your BTC holdings by trading altcoins. More specifically, this can be done by trading altcoins that do not correlate with the general market trends.

During bear markets, new blockchain projects are launched, and sometimes they can be quite successful, despite the general market sentiment. Furthermore, in contrast to bull markets, there isn’t much noise in the news when the sentiment is mediocre. As such, bear markets are considered as perfect periods for spotting the rare altcoin gem that can bring incredible short-term profits.

hyped up coins

For example, following the 2018 market crash, BNB strongly outperformed Bitcoin between March 2018 and June 2019 (+320% vs +13%). The asset ultimately crashed shortly after, but investors that raided correctly were able to increase their BTC holdings considerably.

In addition, you can try to spot swing trading patterns and trade short-term trend breakouts to make profits in BTC on the way down.

4. Crypto put options on Bitlevex

Finally, one of the ways of utilizing your bear market trading capital is by buying put options on our platform. Put options are bearish trading instruments that give you the right, but not the obligation to sell crypto at a certain price on a certain date in the future.

Crypto options on BITLEVEX

For instance, if you are bearish on Bitcoin and believe its price will drop, you can buy a put option contract at $35.000. This ensures that you will be able to sell BTC for that price further down the road when the price ultimately drops. To find out more about options trading, check out this post.


In this article, we discussed the existence of bitcoin cycles and why it is important to be able to spot them on time. We explored some of the best ways to do this, including:

  • Market trend shifts. 
  • Market sentiment analysis. 

More importantly, we provided you with different strategies on how to start making profits in a bear market:

  • Using stablecoins to hedge against market crashes. 
  • Rebalancing your crypto portfolio allocation to reduce risks from altcoin price drops. 
  • Reinvesting your profits with DCA at market bottoms. 
  • Trading non-correlating and hyped-up altcoins to increase BTC holdings. 
  • Put options on Bitlevex

All in all, investors shouldn’t be scared of a bear market, but instead, embrace it and make the best out of it. By using this post as a guide, you should have a good foundation on how to approach the upcoming bear market, whether it’s tomorrow or in a few years’ time.