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DeFi 101: Growing Your Portfolio in a Bear Market

It is the perfect time to adjust, take stock of what you have, learn from your mistakes, and position yourself for the future. If you plan accordingly, bull markets are about enjoying the fruits of your hard work.

The start of 2023 has already been off to a strong green start for markets, surprising many. But are we still in a bear market? Or is this a trap? What comes next?

By reading this guide, you will realize that answer to these short-term questions does not matter. The current environment is still incredibly risk-off, and whatever monthly fluctuations should not impact your years-long plan. Now’s the time to position yourself and grow steadily in an uncertain environment.

So, let’s talk strategy — and how to make the most for yourself during these turbulent times for the crypto market.

Tip #1 — Slow and Steady

The first and most important thing to remember during bear markets is that you’re not going to “miss” anything. So don’t try to time the bottom perfectly or psyche yourself out with FOMO. The most basic rule during bear markets or uncertain market conditions is ‘slow and steady wins the race.’

‘Slow and steady’ isn’t just a saying, though, but a real strategy. When it comes to crypto investing, it’s made up of two parts: dollar-cost averaging (DCA) and compounding low-risk yield.

The Power of DCA’ing

Dollar-cost averaging is an old, tried-and-true investment strategy that applies just as easily to crypto. The idea is simple: invest the same amount in regular intervals regardless of market conditions.

In crypto, this is usually called “accumulation.” Accumulating crypto by averaging out your buys over time is optimal and relieves the stress of trying to time the market perfectly. You’ll also be less emotional about your investment for the better. Of course, this strategy works best during bear markets.

Your goal should be ‘slow and steady accumulation through dollar-cost averaging.’

But accumulation in crypto is different from traditional investing. Instead, it involves something a little extra, and that extra we call yield.

Get That Yield

Crypto is all about making your money work for you. This is something traditional finance can’t offer you. When it comes to DeFi, this is commonly called using the “money legos.” Putting them together in a low-risk and sustainable way should be critical to your bear market strategy.

Yield in crypto comes from many places. For example, you could be a liquidity provider on Uniswap or deposit on AAVE or Compound. But ideally, you want a strategy that’s more “set it and forget.” This way, you can DCA and deposit it into a protocol, earn yield, and compound that yield over and over until the bull market kicks off.

Vesper offers this for you across many different DeFi protocols — Curve, MakerDAO, AAVE, Compound, and so on — which maximizes your yield in a low-risk way. All you have to do is claim your earnings and compound them by re-depositing. Set it and forget it.

Dollar-cost averaging and depositing into Vesper allow you to maximize the ‘slow and steady’ strategy to best position yourself before the bull run.

Tip #2 — Stay Active (you never know what you’ll find)

Bear markets are a time for builders, meaning those who stick around and are active will be rewarded. In other words, bear markets are when you need to get researching.

Think back to the last bear market — those who stuck around before 2021 were rewarded with a Uniswap airdrop; They could participate as a curator for The Graph; Others ran an Avalanche node and were rewarded. All of these proved to be incredibly valuable opportunities as the 2021 market took off.

But these rewards only come if you stay active. So, keep an eye on your yield, DCA, and also be part of the crypto community. You never know when you’ll stumble on something special someone is building. All the best protocols were built during the last bear. And this time, you can be sure that the next generation is already quietly in the works.

One of those quiet builders is us, of course. And we have so much to share in the coming months.

Tip #3 — Understand the Future

When it comes to crypto investing, any major upgrade to either Bitcoin or Ethereum is a significant event.

Commonly, the crypto market tends to work in cycles centered around Bitcoin’s halving event. The next one happens on March 18, 2024. But Ethereum’s own upgrades could prove to be a significant catalyst this time around. Ethereum will implement the Shanghai upgrade in March, unlocking funds for those who staked ETH.

Such details help to understand the time horizon for your investing future and for how long you can accumulate.

How will markets respond to these events? It’s always hard to say, so don’t try to time them. But instead, see them as milestones and set goals for how much exposure you aim to have beforehand.

Lastly, Have Conviction

Conviction in the long game is everything.

For those poor souls who weathered the 2018 bearish winter, it seemed as though nobody was left. In truth, those who stuck around despite it all were deeply rewarded. But it wasn’t easy, and it required lots of conviction. In this bear market, you’ll need that most of all. If you are unsure, stick to the most popular cryptocurrencies like Ethereum or Bitcoin and only dabble a little in a few new protocols you find promising.

In short — DCA, compound that yield, stay active, plan for the future, and have conviction in the long game. Do this, and you’ll be in an enviable position when the bullish momentum returns.

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