crypto strategy

3 tips to survive the crypto winter and become a better long-term investor

Just when it looked like the crypto market was finally stabilizing after a strong selloff earlier this year, the cryptocurrency exchange’s overnight crash FTX and a wave of panic selling by crypto investors. Understandably, many investors are now concerned about the future of their crypto portfolios, and some are now looking to exit the market entirely in search of less risky assets.

Things might look precarious in the short term, especially when some of your favorite cryptos may have gone down 20% or more in just one week. However, now is not the time to abandon the kind of long-term thinking that is key to unlocking future wealth. Here are three steps you can take to focus on the long term and become a better overall crypto investor.

Focus on Large Cap Cryptos

Just two cryptocurrencies — Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO:ETH) – represent more than half of the total crypto market capitalization. Bitcoin has a market cap of $320 billion and Ethereum has a market cap of $148 billion, while the total value of the crypto market as a whole is $833 billion. This is why some investors refer to Bitcoin and Ethereum as “top-notch cryptos”. On a relative basis, these two cryptocurrencies are less risky and less volatile than the rest of the crypto market.

Image source: Getty Images.

Of course, these two crypto blue chips nowhere offer the security and risk protection of stock market blue chips, but they do come with some margin of safety. Bitcoin, for example, has been around since 2009 and Ethereum has been around since 2015. They’ve been through big market declines before and bounced back each time. In contrast, the new cryptocurrencies launched during the last bull market just don’t have a reputation for bouncing back, so we really don’t know what will happen this time around.

To diversify

In the crypto world, some investors like to call themselves “Bitcoin Maximalists” or “Ethereum Maximalists.” This is their way of saying that they only invest in one cryptocurrency and have maxed out their portfolio on that single crypto name. All other cryptos, they say, simply cannot offer the same kind of risk-reward. This might have been a successful strategy when the crypto market was still very new, but in many ways it breaks one of the cardinal rules of successful investing: don’t put all your eggs in one basket.

In other words, diversify, diversify, diversify. Today, there are literally thousands of different cryptocurrencies to choose from. Just as the key to a successful stock portfolio is diversification, the key to a successful crypto portfolio is also diversification. If you look at the top 100 cryptocurrencies on CoinMarketCap, for example, it is possible to divide these cryptos into different baskets. By choosing cryptos from several of these baskets, it is possible to add basic diversification to your portfolio.

For example, a crypto basket could include all layer 1 blockchain projects, such as Ethereum, gimbal (CRYPTO:ADA), Solana (CRYPTO: GROUND)and avalanche (CRYPTO: AVAX). These are some of the best known cryptos with the highest market caps. Other baskets might include stablecoinsgaming and metaverse cryptos, decentralized finance (DeFi) cryptos and meme coins.

Focus on cryptos with proven utility

Finally, one way to build a long-term investment mindset is to focus on cryptos that have demonstrated utility. In the world of crypto, “utility” has a very specific meaning: it refers to blockchain projects that have real-world use cases. For example, Ethereum has a very real use: you can mint and trade non-fungible tokens (NFT) on various marketplaces. Ethereum also offers blockchain-based smart contracts, decentralized applications, and games.

In contrast, meme pieces such as Dogecoin (CRYPT: DOGE) Where shiba inus (CRYPTO: SHIB) offer very little use. Investors buy them because they can skyrocket in value, not because they have intrinsic value. So, a good rule of thumb would be to avoid coins even during any market downturn, as they tend to rise only during crypto bull markets.

Avoid market timing

As a final tip, don’t try to time the market. Instead of buying low and selling high, many crypto investors end up buying high and selling low. In other words, they only get involved in the market when it is already bubbly and speculative, and they cash out once the market has seen a strong sell-off. They bought Bitcoin when it was trading at $68,000 and are now considering getting out of crypto altogether.

Instead of focusing on short-term trading gains, focus on building a long-term mindset. By following the three basic rules above, you can better position yourself for long-term success in the crypto market.

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Dominique Basulto has positions in Bitcoin, Cardano and Ethereum. The Motley Fool has positions and recommends Avalanche, Bitcoin, Cardano, Ethereum and Solana. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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