Crypto Winter Strategy: How to Survive Prolonged Market Declines – BeInCrypto
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. Still, a time like this, when crypto markets are fragile and directionless, could be the time to figure out what to do (or what not to do) with your investments.
Crypto markets have fallen sharply this year, with bitcoin now down more than 70% from its November 2021 closing high, to confirm a bear market, also known as crypto winter, that has begun. with the collapse of the Terra blockchain in May.
Almost every other cryptocurrency of any significance fell alongside bitcoin. Ethereum (ETH), the second-largest digital asset, has fallen 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 flagship cryptocurrency’s fifth notable crash to date. Each time, bitcoin’s price has tended to last three or more years below its previous high.
But the 2022 crypto bear market looks somewhat different – because it is. June’s 40% monthly loss was bitcoin’s biggest drop since September 2011.
While past crashes have been fueled by issues of massive exchange exploits like Mt. Gox and Coincheck and clumsy regulatory interventions, this year’s crypto winter represents a combination of challenging macroeconomic conditions, geopolitical tensions and dodgy projects/decisions of crypto founders.
As fears grow that the Federal Reserve’s expected aggressive interest rate hikes could push the US economy, the world’s largest, into a recession, observers say the current crypto winter could likely do worse and last longer, compared to previous bear markets.
Overcome the bear market
Here’s what you might want to do — and avoid doing — as you navigate an extended market decline.
Keep investing regularly
Periods of heavy losses, called bear markets, can be as much a part of crypto investing as the much nicer runs during bull markets.
“Users can keep part of their wallet in stablecoins to stick with the dollar cost averaging (DCA) strategy,” said Iakov Levin, founder and CEO of the cryptocurrency investment platform. Midas.[In]Crypto.
He said investors could use the funds to purchase commodity crypto assets such as BTC and ETH, as well as other major layer one and layer two solutions.
“I see the DCA strategy as a long-term solution for six months to a year. Such a strategy gives users a good entry point and allows them to make satisfying profits in the next bullish cycle,” Levin added.
Recurring purchases by fixed sums is the practice of regularly investing the same amount of money regardless of the price of the asset, in this case crypto prices, according to the all-know online financial dictionary Investopedia.
This strategy is a form of systematic investing that can potentially provide efficiency when the market has fallen.
Choose a “stable” digital asset and stick to it
After bear markets, cryptocurrency markets have always bounced back to recoup their losses. For the most part, top-notch crypto assets tend to have more resistance in a market riddled with tens of thousands of copycats.
“A proven way to stay afloat during crypto winter times is to avoid highly volatile digital currencies,” said Chris Esparza, founder and CEO of decentralized finance platform Vault Finance.[In]Crypto.
“The more stable the digital asset, the more unlikely an investor will lose their money. Successful investors avoid the prospect of excessive gains during crypto winters and instead pursue low-risk investments that have a high rate of return. guaranteed.
While no crypto asset is without inherent volatility and risk, “investment funds must be properly allocated with adequate provision for marginal losses,” Esparza said.
Rebalance your portfolio
The bull market may have outsized the proportion of crypto in your portfolio. If so, rebalance your portfolio. Yakov Levin, the CEO of Midas Investments, offered “to sell all illiquid digital assets”.
“For example, various altcoins with a low capitalization, up to $100 million – [sell] if there is no specific fundamental precondition for them to grow during the current bear market,” he said. “Users can also create hedged DeFi strategies, where they take profits if the market goes down.”
Keep your eyes on the prize
Regardless of the extent of the decline in the crypto market, it is important for investors to keep perspective on the long-term fundamentals of investing in this growing industry. Markets have historically rebounded 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. Hold the bar high to change or expand your reach,” Paradigm co-founder Fred Ehrsam wrote in a previous post. blog post.
“The same idea is true in a down cycle. The crypto graveyard is littered with the remains of companies that have strayed from their core mission in a down cycle, only to watch in anguish as their idea begins to work in the next up cycle.
While Ehrsam’s message may have been primarily aimed at crypto founders, it’s also true for mainstream investors.
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