How to survive a crypto winter

Cryptocurrency winter is an extended period of cryptocurrency asset prices depressed from previous highs. Similar to a bear market in the stock market, a crypto winter can lead to widespread losses for investors. Here is some key information on how to survive a crypto winter as an investor.

Key takeaway

  • A cryptocurrency winter or a cryptocurrency winter is a long period of depressed asset prices in the cryptocurrency markets.
  • Crypto winters can be unpredictable and difficult to navigate for less experienced investors.
  • Long-term investors sometimes try to “buy the drop” and profit from a recovering crypto economy.

What is a Crypto Winter?

A cryptocurrency winter is an industry term for a long drop in cryptocurrency prices. Crypto winters typically extend from well-known currencies like Bitcoin and Ethereum to NFTs and lesser-known crypto coins and tokens.

Cryptocurrency winters may coincide with other economic declines or a bear market in the stock market, but that’s not always the case. Cryptocurrencies are a relatively new asset class that can move independently of other markets.

“When cryptocurrency prices go down, it’s hard to decide whether to sell before further losses or wait for a hopeful rebound,” said Michael Anderson, financial advisor to Maranatha Financial in Ventura, California. “Cryptocurrencies are a risky asset that could eventually drop to zero. While I don’t think all cryptocurrencies will fail, a good number could eventually bite the dust.”

Since its peak in November 2021, Bitcoin has lost more than half of its value. The widespread drop in prices has severely impacted several cryptocurrency and blockchain projects. In particular, the Terra Luna algorithmic stablecoin lost its peg to the US dollar, decimating user savings. The Celsius and Voyager platforms went bankrupt in 2022 during this time, likely costing depositors much of their stakes.

The failure of cryptocurrency lending and trading platforms worries Anderson. “The losses of Voyager, Celsius and the disappearance of the LUNA stablecoin are good examples of why investors should be extremely cautious,” she said.

How to know that you are in a crypto winter

As a newer resource, the crypto winter is not as clearly defined as the downturns elsewhere. If treated as a bear market than the stock market, a crypto winter would occur when prices fall 20% or more from recent highs.

Perhaps the best barometer for cryptocurrency prices is the S&P Cryptocurrency Broad Digital Market Index. As of this writing, this index is down about 70% from its recent peak, clearly indicating a crypto winter. However, long-term holders are still rising across the three-year and five-year horizons.

You should sell all your cryptocurrencies in a crypto winter

In the stock market, many investors believe that the market will eventually recover from any downturn. History proves this, but there is no guarantee that markets will always go up. In reality, only time will tell.

“Cryptocurrency prices have seen sharp declines and long periods of stagnant prices before seeing huge recoveries, so you can never fully count cryptocurrencies,” Anderson said. “While there is a great risk of loss, we’ve seen people make 10x, 100x, or more in a short time when a successful crypto project takes off.”

While investors are very confident in the stock market averages, the cryptocurrency has many fans and many skeptics. The oldest bags in Europe are hundreds of years old. The New York Stock Exchange has its roots in 1792. This gives investors the confidence that markets will survive the ups and downs of business cycles.

Bitcoin started in 2009. While it has a solid decade behind it, it is still very new to traditional investing. This leaves more questions about the future of cryptocurrencies and its ability to recover from a long period of falling prices. It’s best to keep the risks of any investment in mind when deciding how much to hold and what you can afford to lose.

5 tips for surviving a crypto winter

If you feel stomach ache like a roller coaster ride when cryptocurrency prices drop, consider these tips for surviving a crypto winter.

  1. Don’t invest more than you can afford to lose: Crypto is still quite new. It is highly risky and volatile. Smart investors avoid investing more than they can afford to lose. It is unwise to invest your life savings in any cryptocurrency.
  2. Carefully evaluate each Crypto project: Each coin and token is tied to a different management entity or group of volunteers. Some have proven to be scams. When it looks like a Wild West, it’s important to carefully consider each crypto project before deciding how much to invest.
  3. Beware of the herd mentality: WallStreetBets and other online communities are fun places to learn about and discuss investing, but that doesn’t mean you should follow everyone’s advice. The online discussion forums are full of hobbyists who are not your friends in real life and are not interested if you lose your shirt in the cryptocurrency markets. Stay focused on your personal goals and risk tolerance when investing.
  4. It’s okay to make changes to the wallet: In poker, there is a sunk cost theory that it is difficult to fold a hand even when you think you are losing if you have already made a big bet. It may seem logical to bet even more to avoid losing what was put in, but if the money is already lost, investing more chasing sunk costs leads to more losses. You don’t have to HODL on crypto that’s down if you don’t think it’s coming back. It’s okay to sell and make changes to your portfolio as often as you see fit.
  5. Consider buying the dipConversely, if you believe a cryptocurrency dip is temporary, you may want to buy lower, hoping to buy lower and see your portfolio value rise as the markets recover.

According to Anderson, “Don’t let past losses influence future investment decisions too much. Focus on what you believe to be the intrinsic value of the currency or project and let that guide your decisions. ” “If you’re not sure how much something is worth, it might be worth skipping. It’s best to keep your investments in resources you understand. ”

If in doubt, it may be best to consult with an investment professional who acts as a trustee, which means he must put your best interests first.

Will cryptocurrency prices recover?

Open trading markets determine the prices of cryptocurrencies. The latest trading price sets the currency on each exchange. There is no guarantee of future prices or future recovery.

How does cryptocurrency work?

Cryptocurrencies are digital assets managed using blockchain technology. Unlike government-backed fiat currencies, cryptocurrencies are run by volunteers and for profit-making companies that develop and update the underlying software.

Where can I buy cryptocurrency?

Cryptocurrencies are sold on both centralized and decentralized exchanges. Each has pros and cons with varying risks and costs. It is advisable to research different exchanges to choose the best one for your needs.

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