We have been enduring a very dreadful period of time in the crypto space. Since November 2021, the market has been in a slump as Bitcoin dropped to around $18,500, the lowest it has been since its 2017 boom. Currently, many users are struggling to come up with a solid investment strategy due to the market condition – unsure if they should trade, hold, or try something else, and to focus on which assets. In this article, we will be discussing the merits of staking during bear market as it is a highly popular strategy employed by many users. Please note that this is not an investment advice; we only hope to give users some insights so that they can decide on their own if it’s the right strategy for them at this moment. Let’s get started!
Why Stake During Bear Market?
Staking is essentially depositing your “unused” assets to a pool to earn passive income. Your staked tokens stay in a staking pool often belonging to a network’s validator, chosen nodes that support the infrastructure of a blockchain and validate new blocks (transactions) to be accepted onto the chain. This process helps secure and decentralize the network and is at the core of Proof-of-Stake blockchains. In return for the stakers deposit, they will receive back rewards in the form of tokens.
Typically, down market is the time where users would amass new coins they have yet to own if they think these assets have a high potential to bounce back in price soon. In the case of downed assets you already own, users will usually try to keep holding onto to them until the price increase again or panic sell to cut losses in some cases. Holding would means these assets are “idle” and therefore, don’t really generate any value while you wait. This is why staking is considered an attractive strategy during a bear market, since you can still get something out of these downed assets while they’re not being used.
Another benefit to staking during a bear market is that when the price is low, you can get more tokens when you buy at the lowered market price. And more tokens when staked means higher rewards.
As with many investment methods, there are risks to be considered as well as ways to work around them.
1/ Lock Periods
Some stakable coins like ATOM, IRIS, come with lock period so you cannot access your staked assets whenever you need. If the price of your staked assets decreases significantly, being unable to unstake them will hurt your overall returns. For example, if you’re currently earning 20% APY from an asset but its market value dropped by 50% throughout the year, you’d have still made a loss instead of earning more.
However, there are many coins that you can unstake at any time, such as ADA, XTZ. If you can determine when a coin could potentially increase or decrease in price, you can still elect to stake coins with lock periods, however. Moonstake offers support for both staking coins with and without lock periods so you can earn the way you want. Additionally, you can always view the coin’s price movements through daily, weekly, month, yearly, and even all-time charts, so you can always keep track of its market value to take necessary actions at the needed time.
If you are staking a less popular altcoin with low liquidity on exchanges, you might run into a situation where it’s too difficult to convert your staking rewards into Bitcoin or stablecoins. Therefore, it is advisable to stake less obscure coins with higher liquidity, especially during bear market where trading activity is generally low for every asset. As a leading staking provider, Moonstake offers staking support for highly demanded coins to give user a seamless staking experience, regardless of market scenario.
3/ Rewards Availability
Different staking coins generate claimable rewards in different time intervals. Some coins like ADA, ONT give out rewards every few days. Others like CENNZ, DOT, ONE have staking rewards available to claim daily or every few hours depending on the speed of minting new blocks. If you are staking for a long period of time, this shouldn’t be an issue but for users who want to use their coins more actively, you might want to consider staking coins with faster reward availability rate. The majority of staking assets supported by Moonstake hand out staking rewards daily or every few hours, but we also support assets that give out rewards in several days, so you have many options to choose from depending on your investment strategy.
4/ Loss or Scam
Finally, there is always the looming threat of scammers tricking you to reveal your private keys and personal data. Or you simply lost your wallet’s private key and passphrase. So always make sure to backup your wallet and store your private key information in a secure place. Regarding asset safety, Moonstake offers robust security features such as passphrase management, 2FA authentication, pincode and biometric requirements to unlock and open wallet app. Additionally, we never store user information and data on our servers. Private keys are fully encrypted and stored on your local device, so only you can access your funds. So you can utilize our security features to keep your wallet safe, while practice due diligence online to avoid getting tricked by scammers.
Overall, there are certainly some potential risks to keep in mind should you decide to stake your assets during this bear market. However, Moonstake Wallet offers a wide range of robust functionality and options to help user so mitigate these risks, make strategic investment decisions on their own, and earn the way they want with staking!