It’s no secret that the global economy has struggled in the past few years, especially in light of the ongoing COVID-19 pandemic. As a result of these growing issues, some cryptocurrency investors are worried about steep price falls across the sector.
Within the next few months, crypto enthusiasts and seasoned investors will grapple with a crypto winter. What is a crypto winter, how does it play a role in the economy, and what can you do to survive the anticipated crypto winter?
Defining a Crypto Winter
In short, a crypto winter is the equivalent of a bear market on Wall Street. A bear market on Wall Street occurs when stocks fall 20% from their highest value, but this figure is not as specific for crypto. Crypto markets can follow similar patterns to the stock market, where cycles are subject to go up or down.
The crypto market has experienced significant turmoil recently, with large swaths of digital currencies dropping in value. As a result, experts suggest we are experiencing a crypto winter. There are a few signs to prove that the crypto market is struggling. For example, Bitcoin hit a 17-month low last month.
Recently, the TerraUSD crypto project was a notable failure and there are reports of crypto companies laying off a significant number of employees. Coinbase laid off around 18% of its workforce, around 1,100 employees, to prepare for the crypto winter. The Celsius Network, one of the leading crypto lending platforms, halted withdrawals. For these reasons, a crypto winter is upon us.
How A Crypto Winter Impacts Investors?
Suppose you’re someone who invests in crypto or is thinking of investing. In that case, it’s important to understand the state of the crypto market. There have been other crypto winters in the past, such as the one from late 2017 to early 2018. Crypto prices fell and then suddenly rose, leading to a significant crypto bull market.
Prices dipping are a normal part of investing, so facing a crypto winter is not something that should keep you up at night. However, it’s understood that seasoned investors are better positioned to survive a crypto winter than their more naïve counterparts.
Despite a crypto winter, it’s expected that crypto will bounce back. It’s reported that interest in cryptocurrency is at an all-time high, even with the price of Bitcoin being so volatile.
Tips For Surviving a Crypto Winter
Investing in cryptocurrency when the market is performing well is already risky — just because the market is suffering, it doesn’t mean investors need to make rash, impulsive decisions.
Here are some tips you should keep in mind when navigating through this crypto winter and retain as much value in your portfolio as possible.
1. Reduce Exposure to Your Most Volatile Assets
Because the market is facing a downturn, now is the time to evaluate your portfolio and reduce your exposure to volatile assets. For example, now may not be the time to invest heavily in NFTs or meme coins. Stick to investing in established projects with a good track record.
2. Consider Dollar-Cost-Averaging (DCA)
DCA is an investment strategy that allows you to buy an asset in tranches over time. This averages out the price paid and can account for some of the volatility you should expect.
3. Stake Your Tokens
Staking your tokens is one of the simplest ways to protect yourself during a crypto winter. It can also increase the long-term value of your crypto investment portfolio since the staked asset is continuously accruing tokens. Cardano, Solana, Polygon and Avalanche allow you to stake tokens on the network to earn yields.
4. Enhance Your Crypto Knowledge
Because the market may not be very profitable, it would be a good time to build your knowledge of crypto and the crypto market. Spend time learning about different investment strategies, researching potential coins you may be interested in or diversifying your portfolio.
5. Navigating A Crypto Winter
Cryptocurrency is expected to grow, despite any periods of poor performance. Crypto winters can pose challenges to the average investor, but it is something that requires patience and a positive attitude.
There will be plenty of ups and downs as the crypto market grows, so be willing to wait for this to pass, and you’ll be more likely to reap the rewards.
- Digital Currency vs. Cryptocurrency: The Pros and Cons
- DASH Cryptocurrency: How To Buy & Is It Worth Buying?
- 3 Different Types of Crypto Trading
Devin Partida is a FinTech writer who’s been featured on Money Crashers, Due and Yahoo! Finance. She is also Editor-in-Chief of ReHack.com