Crypto winter is a prolonged period of low cryptocurrency asset values in comparison to previous peaks. Similar to a bear market in stocks, a crypto winter may result in significant losses for investors. Here are a few essential tips for investors looking to weather the current crypto winter.
Table of Contents
- Crypto winter: what is it?
- How to Tell if You’re in a Crypto Winter
- Should You Sell All Your Crypto During a Crypto Winter?
- Five Ways to Avoid a Crypto Winter
Crypto winter: what is it?
A cryptocurrency winter is a term used in the industry to describe a prolonged decline in cryptocurrency prices. NFTs and less popular crypto coins and tokens typically experience crypto winters, in addition to well-known currencies like Bitcoin and Ethereum.
Although it’s not always the case, crypto winters may coincide with other economic downturns like a stock market bear market. A relatively new asset class that is independent of other markets are cryptocurrencies.
Bitcoin’s value has decreased by more than half since November 2021, when it peaked. Numerous cryptocurrencies and blockchain initiatives were adversely harmed by widespread price decreases.
Bitcoin’s value has decreased by more than half since November 2021, when it peaked. Numerous cryptocurrencies and blockchain initiatives were adversely harmed by widespread price decreases. An important development was the loss of the Terra Luna algorithmic stablecoin’s peg to the US dollar, which wiped out users’ savings. During this time, the Celsius and Voyager platforms failed in 2022, presumably costing depositors a sizable chunk of their investment.
How to Tell if You’re in a Crypto Winter
Crypto winter is less well-defined than downturns in other markets because it is a more recent asset. A crypto winter would happen if values fell by 20% or more from recent highs, similar to a bear market in stocks.
The S&P Cryptocurrency Broad Digital Market Index is maybe the most accurate indicator of cryptocurrency prices. This measure is currently around 70% below its most recent peak, making a crypto winter obvious. Long-term holders, though, are still in the black over the next three and five years.
Should You Sell All Your Crypto During a Crypto Winter?
Many investors in the stock market think that any downturn will eventually be overcome. Although history has shown this to be true, there is no assurance that markets will always rise. In actuality, only time will tell.
While stock market averages have investors feeling quite assured, there are many supporters and detractors of cryptocurrencies. In Europe, the oldest stock markets date back hundreds of years. Origins of the New York Stock Exchange can be found in 1792. Investors can now have faith that markets will endure economic cycle ups and downs.
The risks associated with any investment should be considered when determining how much to hold and how much you can afford to lose.
Bitcoin was established in 2009. Despite having a good ten years under its belt, it is still relatively new when compared to conventional investments. This raises fresh concerns about the future of cryptocurrencies and their capacity to bounce back after a protracted period of declining pricing. The risks associated with any investment should be considered when determining how much to hold and how much you can afford to lose.
Five Ways to Avoid a Crypto Winter
Consider these advice to get through a crypto winter if falling cryptocurrency values give you the queasy sense of being on a roller coaster.
Don’t risk more money than you can afford to lose.
The concept of cryptocurrency is still very new. It’s extremely unstable and hazardous. A wise investor will never invest more money than they can afford to lose. Putting your entire life savings into a cryptocurrency is not a good idea.
Carefully Assess Each Crypto Project
Every coin and token has a different managing organization or volunteer group associated with it. Some have turned out to be frauds. It’s crucial to carefully assess each cryptocurrency project before determining how much to invest while the market is chaotic.
Watch out for Herd Mentality
Even though WallStreetBets and other internet forums are enjoyable settings for learning about and discussing investment, you shouldn’t follow everyone’s suggestions. Online forums are populated by enthusiasts who are not your real-life pals and are unaffected if you lose money in the cryptocurrency markets. When investing, keep your eye on your specific objectives and risk appetite.
It’s fine to Make Portfolio Adjustments
According to the sunk cost theory in poker, if you’ve already placed a sizable bet, it’s challenging to fold a hand even if you think you’ll lose. Even if it seems to make sense to place even more bets in order to protect the first investment, doing so will only result in further losses if the money has already been lost. If you don’t think cryptocurrency will recover, you don’t have to hold onto it. You are free to sell and modify your portfolio whenever you see fit.
Even if it seems to make sense to place even more bets in order to protect the first investment, doing so will only result in further losses if the money has already been lost.
Examine purchasing the dip
On the other hand, if you think the current bear market in cryptocurrencies is only transitory, you could wish to invest at lower prices in the hopes of buying cheap and growing the value of your portfolio when the markets rebound.
If you are unsure, it may be preferable to speak with a fiduciary investment professional who is obligated to operate in your best interests.
There are times during the winter when it feels as though the sun would never shine again. However, all seasons and markets go through cycles; just as spring and summer come after winter, bear markets follow bull markets. The history of the stock market demonstrates that prices have always finally increased.
The difficulty with crypto is that it involves riskier investments than, say, shares. There is a tiny possibility that this market, which is still somewhat new and uncontrolled, could utterly collapse. To now, Bitcoin has managed to overcome even large drops and continue on to new highs. There are numerous reasons for it to be able to do so once more as a long-term investor. But the key to enduring a protracted winter is to plan for the worst while holding out for the best.