What is Rupee Cost Averaging in SIP & How it Works?

What is Bear Market?

In traditional finance and stock markets, a ‘bear market’ described a conditioning in which prices of securities in a market decline by more than 20% from their recent highs, often accompanied by negative investor sentiment and declining economic prospects.

It is a period of time where supply is greater than demand, confidence is low, and prices are falling. Pessimistic investors who believe prices will continue to fall are, therefore, referred to as “bears.” Crypto Bear Markets can be difficult to trade in — particularly for inexperienced traders.

How Long do Bear Markets Last in Crypto?

The duration of bear markets in crypto, also termed as crypto winters, can vary. Even if we look at the brief history of cryptos since their inception back in 2009, despite their extreme volatility, they have gone through multiple cycles of raging bull runs followed by frigid winters. The last bear run began in early 2018 right after the bursting of the ICO bubble – which lasted two and a half year and the recent bull run happened all through 2021.

Now, the crypto market has been falling ever since the beginning of 2022 – amid a slew of bad news ranging from hawkish central bankers across the world hiking interest rates to recession concerns. The overall crypto market cap saw a major value erosion, falling from $2.26 trillion from the beginning of 2022 to falling below $800 billion. Only in the past two weeks, since the beginning of 2023, the overall crypto market has shown a strong recovery back to near $1 trillion region.

Total Crypto Market Cap | Source: Tradingview

It also must be considered that the current crypto market situation is vastly different than as recently as two years ago. There is a lot more institutional interest in the crypto space, there are bigger tech companies trying to make a mark in the space. Even large investment institutions are finally taking notice which will most definitely lead to larger mainstream attention on an industry as nascent as crypto.

We have seen Facebook rebranding itself as Meta, JP Morgan buying up virtual land in the metaverse and many other such moves from these extremely behemoths. This would only serve as a trigger for overall growth in the sector and thus, this crypto bear market may turn out to be wildly different than the last one.

Read more in detail on Top Crypto Bear Market Indicators

How do I protect my portfolio in a down market?

5 Ways to Protect your Crypto Portfolio

1. Accumulate with Cost Averaging

Cost averaging refers to the investment strategy wherein an investor divides the total invested amount across periodic purchases of the asset with an effort to reduce the impact of volatility on the overall purchase.

2. Diversify

Diversification is the key factor to fight volatility. A wise investor must spread his or her portfolio among various crypto assets. The process of diversifying the portfolio among various crypto assets depends solely on the risk appetite of the investor.

3. Invest only What You can Afford to Lose

Having a proper idea about your risk appetite is important before you start investing in any asset class. This becomes all the more important with volatile asset classes like crypto. Investing is good to create long-term wealth, however, it is important to invest wisely.

4. Rebalance Crypto Potfolio

Go over your portfolio at regular intervals to weed out bad projects and invest more on good ones. Bull runs sometimes can skew portfolios to favour one or two components heavily thus revising those to address them and maintain balance is a good idea too.

5. Don’t Freak Out, Stay Calm Through the Winter

Bull runs are followed by bear runs in the market and the reverse is also true. This is the nature of any asset class and one shouldn’t be too worried over short term speculative actions and swings. Crypto winters can last for a few months or may last over a few years. Don’t freak out, stay calm and collected and keep the above points in mind.

Read On: Ways to Survive the Crypto Bear Market

What is Rupee Cost Averaging?

Now, while all the above-mentioned strategies are great, we will take a deep dive into one that you can consider and works extremely well over the long term: the Rupee-cost averaging. We have already taken a look at the definition of cost averaging above, but how does it work?

So the technique behind it is you allocate a certain amount of money regularly, could be weekly or monthly and invest it into your favorite crypto or a portfolio of cryptos over a reasonably long period and in effect you will be able to see a really great ROI at the end of the period. Here’s an example below for simpler understanding.

Rupee Cost Averaging in Crypto

For simpler calculation, we will only look at an investment in Bitcoin, that began 5 years ago and you have been investing a fixed amount of money at a regular interval without taking it out ever – letting compounding work its magic. In our example, we will consider an investment of ₹1000 on a monthly basis for the past 5 years. 5 years equates, 60 months, hence the total investment at the end of the period would be ₹60,000. Now take a look at the table below to show ROIs at the end of the term.

Also, for simpler calculation purposes, we will round off the present value of Bitcoin in INR to about ₹18,00,000.

The chart in brief:

• The light blue line indicates the steady progression of investment
• The dark blue line indicates the nature of returns over the five year period, plotted out in intervals of six months, beginning from August 2017 to end of July, 2022.
• The run-up from the beginning of 2020 indicates the returns over the period ever since the outbreak of Covid-19 that resulted in a massive rally in cryptos
• The drop from the beginning of 2022 indicates the bear market that began at the start of this year

If you began ₹1000 every month from the August of 2017 till now, even after the bear market with Bitcoin fallen over 70% from its all-time-highs, your total investment of ₹60,000 over the five years would still have been upwards of 160% at ₹1,56,514 as of today. Also, If you look closely at the graph attached above, when Bitcoin touched its ATH, your ROIs would have been standing at an astounding 5.5x in the same timeframe.

How does Rupee Cost Averaging in Crypto SIPs help?

The black point on the dark blue line marks the beginning of the current crypto bear market right at the beginning of 2022. Thus, from that point on we have seen a significant fall in value however, thanks to the disciplined investment effort over the past 5 years, we are still sitting on a near 160% profit, despite the raging bear market.

Thus, it is easy to see why a long term view on your crypto investments, with a systematic disciplined plan in place can smoothen out all the effects of the extreme volatility that the crypto market presents and eventually give extraordinary returns. You can do this easily with CoinDCX’s Crypto SIP feature.

CoinDCX’s Crypto SIP feature:  Crypto Investment Plan

Investment Strategies in a  Crypto Bear Market

So, this will outline a very generic plan with a lot of blanks that the investor themselves can fill out based on their risk appetite and the investment amount they are willing to make.

• Step 1: Identify a comfortable time horizon – preferably long term
• Step 2: Decide the frequency of investment (daily, weekly or monthly) based on the volatility of the crypto asset
• Step 3: Identify the amount of capital you are willing to set aside for the investment (also, something that you wouldn’t urgently need, basically disposable income)
• Step 4: Research, analyse and find a list of cryptos best suited to invest in the bear market
• Step 5: Begin Crypto SIP in the portfolio designed by you.

Also read: Top Crypto to Invest in the Bear Market!

Where to Start Investing to or Trading in Crypto

The crypto market is volatile but also very exciting with the potential for big future gains. As you tread with the powered intention to drive potential returns with crypto, CoinDCX is your go-to app. It lets you invest or trade in crypto within a safe and simple environment. To begin, simply,

• Download the Bitcoin and Crypto App and sign up for free
• Deposit an INR amount into your CoinDCX Wallet
• Trade or invest to purchase the crypto asset of your choice

Simple? Get started on your crypto journey with CoinDCX today and fortify your financial goals!