Crypto's price cycles are not subtle. The market gives Australian investors plenty of opportunities to make decisions they regret, both on the way up and on the way down. A bear market is when most of those decisions happen.

This guide covers practical strategies for Australian crypto investors in a downturn, with attention to where the ATO's rules actually help (capital losses) and where they don't (almost everywhere else).

Are we in a bear market?

The textbook definition is a sustained drop of 20% or more from recent highs. The practical definition is when crypto Twitter goes quiet, retail volumes fall, and your group chat stops sending you links. Both definitions tend to converge.

Whether we are currently in one is less important than having a framework for when we are. The framework starts with knowing your own position.

Step one: assess your risk profile

Before deciding what to do, work out what you can afford to do. Risk profile is the honest answer to "if this position dropped 80% tomorrow, would my life be materially affected".

Aggressive profile. Portfolio is mostly small-cap tokens, some BTC and ETH, no stablecoins. Uses unaudited platforms and new protocols. Dozens of positions. Drawdown tolerance is high in theory but rarely tested.

Moderate profile. Mostly BTC and ETH with smaller allocations to large-cap alts and stablecoins. Sticks to established protocols and venues. A concentrated portfolio with informed conviction.

Conservative profile. Predominantly BTC, ETH, and stablecoins. Total crypto exposure under 5 to 10% of net worth. Treats crypto as a high-volatility asset class within a broader portfolio, not a primary store of value.

There is no right or wrong profile. There are profiles that match your actual financial situation and profiles that don't.

Strategies that hold up in a downturn

Dollar-cost averaging

Dollar-cost averaging is buying a fixed AUD amount of an asset at regular intervals regardless of price. The point is removing the urge to time entries. Over a multi-year cycle, DCA into BTC and ETH has historically outperformed most attempts at timing the bottom.

Set the schedule, automate it through an AUSTRAC-registered exchange that supports recurring buys, and check in monthly rather than daily.

Buying the dip (with discipline)

If you have cash on the sidelines and conviction in specific assets, buying during sustained drawdowns is the simplest mechanical edge in crypto. The risk is buying what feels like the bottom only to watch the asset drop another 50%.

The discipline part: define entry levels in advance, allocate fixed AUD amounts to each, and don't deploy the entire reserve in one tranche. The mistake is going all-in on the first 20% drop and being out of dry powder when the next 40% arrives.

Portfolio diversification

Diversification is unsexy and works. Within crypto, that means avoiding 100% exposure to a single asset or sector. Across asset classes, it means crypto sits inside a broader portfolio that includes traditional assets that may behave differently in a downturn.

For an Australian investor, super contributions remain the highest-leverage tax-advantaged allocation available. Crypto sits somewhere downstream of that.

Staking

If you intend to hold an asset through the cycle, staking it (where supported) generates additional yield while you wait. Staking rewards are ordinary income at the AUD value on receipt under ATO rules, which adds a tax layer to plan for.

The trade-off is lockup periods on some protocols and validator risk on others. Treat staking as a way to compound a position you already hold, not as a reason to take a position you wouldn't otherwise want.

Margin and shorting

Experienced traders can profit from declining markets by shorting. For most retail investors, leveraged shorts in a falling market are a way to get liquidated on a counter-trend rally before the broader trend resumes.

The tax treatment for margin and perpetual trading in Australia sits in an ATO guidance gap, covered in our crypto margin trading tax guide. The summary: classification as investor vs trader matters more here than for spot, and the conservative position for active perp traders is to lodge on revenue account.

Tax-loss harvesting (this is where the AU angle gets sharp)

Capital losses on crypto are the one structural advantage Australian investors get during a downturn.

The mechanics: selling crypto at a loss crystallises a capital loss, which offsets capital gains for the year. Excess losses carry forward indefinitely with no time limit. There is no annual cap on how much loss you can carry forward, and no offset against ordinary income (so no claim against your salary).

Australia does not have a wash sale rule equivalent to the US. You can theoretically sell BTC at a loss and rebuy the same BTC the next day without the loss being automatically denied. The catch is Part IVA, the general anti-avoidance provision.

If the sole or dominant purpose of the sale and immediate rebuy is to crystallise a tax loss with no genuine change in your position, the ATO can apply Part IVA to disallow the loss. The intent test is what matters. Genuine repositioning (selling because you no longer want the exposure, then later reallocating) is fine. Round-tripping the same asset on the same day with no commercial rationale is risky.

The cleanest approach during a sustained downturn:

• Identify positions you no longer believe in. Realise the loss.
• Reallocate to different assets, not the same asset.
• If you do want exposure to the same asset, wait. The ATO has not specified a precise period, but a meaningful gap is your friend.

Document the rationale for each disposal. If a tax agent or the ATO asks why, "I no longer wanted exposure to X" is a defensible answer. "To crystallise a loss" is not.

For non-disposal losses (lost keys, theft, exchange collapses), see our lost, stolen or hacked crypto article.

Hodling

The simplest strategy. If you bought because you have a multi-year thesis on crypto, a 12-month drawdown does not invalidate it. The discipline is doing nothing when doing nothing is harder than doing something.

The 12-month CGT discount in Australia rewards holding. Disposals at a 13-month mark get the 50% discount that 11-month disposals do not. If your conviction is long-term, the tax code is aligned with you.

What not to do in a bear market

A short list, written from experience:

• Do not lever up to average down on a position that is already 60% under water.
• Do not chase tokens with 99% drawdowns because "they can't go much lower". They can. They usually do.
• Do not stop tracking your transactions because the portfolio is depressing to look at. Capital losses are claimable only with evidence.
• Do not move funds to obscure venues looking for yield. Bear markets are where exchange collapses happen, as Australian users of FTX, Celsius, and BlockFi can attest.

How Summ helps in a bear market

The Summ dashboard tracks portfolio value, cost base, and unrealised gains and losses across all your wallets and exchanges. When you decide to crystallise losses, the platform calculates the exact AUD impact based on FIFO, LIFO, HIFO, or specific identification, and shows how the loss interacts with your year's capital gains.

For ATO-specific reports including the 12-month CGT discount, parcel-level identification, and income vs capital classification on rewards, Summ produces a lodgment-ready report for myTax or your accountant.

The broader rules sit in the definitive 2026 Australian crypto tax guide.

Generate a free preview to see your position before lodgment.

This article is general information, not financial or tax advice. For material positions, get a registered tax agent.