Crypto Winter Strategy: How to Survive the Extended Market Downturns

The continued decline of the cryptocurrency market could be very surprising. Where is the market going? Are we in a bear market? How long will it last? It’s hard to say. Yet, a time like this, where cryptocurrency markets are shaky and directionless, may be the time to figure out what to do (or not to do) with your investments.

Cryptocurrency markets have tumbled this year, with bitcoin now down more than 70% from its closing record high of November 2021, to confirm a bear market, also known as crypto winter, which began with the collapse of the Earth’s blockchain. May.

Almost all other cryptocurrencies of any significance have declined along with bitcoin. Ethereum (ETH), the second largest digital asset, plunged 73% from its all-time high. Solana (SOL), Cardano (ADA) and Binance Coin (BNB) are all in the red.

This is just the latest in a cycle of severe bitcoin crashes since 2011, the fifth such crash since the Bellwether cryptocurrency to date. Each time, bitcoin’s price tended to last three or more years, trading below its previous high.

But the 2022 cryptocurrency bear market looks somewhat different, because it is. The 40% monthly loss recorded in June was bitcoin’s heaviest fall since September 2011.

While past crashes have been fueled by the problems of massive exchange exploits like Mt. Gox and Coincheck and clumsy regulatory interventions, this year’s crypto winter represents a combination of tough macroeconomic conditions, geopolitical tensions, and dubious projects / decisions. of the founders of cryptocurrencies.

As fears grow that the Federal Reserve’s expected aggressive interest rate hikes would push the U.S. economy, the world’s largest, into a recession, observers say the current cryptocurrency winter could likely hurt more and more. last longer than previous bear markets.

Resist the bear market

Here’s what you may want to do – and avoid doing it – as you face a prolonged market decline.

Keep investing consistently

Periods of heavy losses, so-called bear markets, can be as much a part of investing in cryptocurrencies as much more fun rides during bull markets.

“Users can keep part of their stablecoin portfolio to stick to the average cost of dollar (DCA) strategy,” said Be Iakov Levin, founder and CEO of the Midas cryptocurrency investment platform.[In]Crypto.

He said investors could use the funds to buy core crypto assets like BTC and ETH, as well as other tier one and two major solutions.

“I see the DCA strategy as a long-term solution from six months to a year. Such a strategy offers users a good entry point and allows them to make satisfying profits during the next bullish cycle, ”added Levin.

Average dollar cost is the practice of investing the same amount of money on a regular basis, regardless of the price of the asset, in this case the prices of cryptocurrencies, according to the Investopedia online financial dictionary.

This strategy is a form of systematic investing that can potentially offer efficiency when the market is down.

Choose a “stable” digital asset and keep it

After the bear markets, the cryptocurrency markets have always recovered to recoup the losses. For the most part, blue-chip crypto assets tend to have more staying power in a market filled with tens of thousands of imitations.

“A proven way to stay afloat during crypto winter periods is to avoid extremely volatile digital currencies,” Chris Esparza, founder and CEO of the decentralized finance platform Vault Finance, told Be.[In]Crypto.

“The more stable the digital asset is, the more unlikely an investor is to lose their money. Successful investors avoid the prospects of excessive earnings during cryptocurrency winters and, rather, sue for low-risk investments that have a guaranteed rate of return. ”

While no crypto asset is devoid of inherent volatility and risk, “investment funds should be properly allocated with an adequate reserve of marginal losses,” Esparza said.

Rebalance your wallet

The bull market may have messily increased the percentage of cryptocurrencies in your wallet. If so, rebalance your wallet. Iakov Levin, CEO of Midas Investments, proposed to “sell all low liquidity digital assets”.

“For example, various altcoins with a small cap, up to $ 100 million – [sell] if there are no specific fundamental prerequisites for their growth during the current bear market, “he said.” Users can also create covered DeFi strategies, where they make profits in the event of a market downturn. ”

Keep your eyes on the prize

Regardless of how profound the decline in the cryptocurrency market may be, it is important for investors to keep a perspective on the long-term fundamentals of investing in this growing sector. Markets have historically recovered from any downturn. This means don’t panic, sell your blue chips or act recklessly.

“Since everything seems to work in boom times, it’s tempting to want to do everything. Keep it high to change or expand your scope, ”Paradigm co-founder Fred Ehrsam wrote in a previous blog post.

“The same idea is true on a downcycle. The cryptocurrency graveyard is littered with the remnants of companies that have strayed from their main mission in one downcycle, only to watch in anguish as their idea started working in the next upcycle.

While Ehrsam’s message may have been primarily aimed at cryptocurrency founders, it applies equally to ordinary investors.

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