Crypto Winter Strategy: How to Survive Extended Market Declines

The cryp­tocur­ren­cy mar­ket con­tin­ued decline could be very star­tling. Where is the mar­ket going? Are we in a bear mar­ket? How long will it last? It is hard to tell. Yet, a moment like this one, when cryp­to mar­kets are shaky and direc­tion­less, could be a time to fig­ure out what to do (or not to do) with your investments.

Cryp­to mar­kets have fall­en sharply this year, with bit­coin now down more than 70% from its record clos­ing high in Novem­ber 2021, to con­firm a bear mar­ket, also known as cryp­to win­ter, that began with the col­lapse of the Ter­ra blockchain in May.

Almost every oth­er cryp­tocur­ren­cy of any sig­nif­i­cance declined along­side bit­coin. Ethereum (ETH), the sec­ond largest dig­i­tal asset, has slumped 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 notable crash from the bell­wether cryp­tocur­ren­cy to date. Each time, the price of bit­coin has tend­ed to last three or more years trad­ing below its pre­vi­ous high.

But the 2022 cryp­to bear mar­ket feels some­what dif­fer­ent — because it is. The 40% month­ly loss expe­ri­enced in June was bitcoin’s heav­i­est drop since Sep­tem­ber 2011.

While past crash­es were fuelled by issues of mas­sive exchange exploits like Mt. Gox and Coincheck and ham-fist­ed reg­u­la­to­ry inter­ven­tions, this year’s cryp­to win­ter rep­re­sents a com­bi­na­tion of dif­fi­cult macro­eco­nom­ic con­di­tions, geopo­lit­i­cal ten­sions, and dubi­ous projects/decisions by cryp­to founders.

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

Weathering the bear market

Here’s what you may want to do — and avoid doing — as you get through a pro­longed mar­ket decline.

Keep investing consistently

Peri­ods of heavy loss­es, so-called bear mar­kets, can be as much a part of cryp­to invest­ing as the far more enjoy­able runs dur­ing bull markets.

“Users may keep part of their port­fo­lio in sta­ble­coins to stick to dol­lar-cost aver­ag­ing (DCA) strat­e­gy,” Iakov Levin, founder and CEO of cryp­tocur­ren­cy invest­ment plat­form Midas, told Be[In]Crypto.

He said investors could use the funds to buy core cryp­to assets like 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 sat­is­fac­to­ry prof­its dur­ing the next bull cycle,” Levin added.

Dol­lar-cost aver­ag­ing is the prac­tice of invest­ing the same amount of mon­ey on a reg­u­lar basis, regard­less of the asset price, in this instance cryp­to prices, accord­ing to the know-it-all online finan­cial dic­tio­nary Investopedia.

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

Choose a ‘stable’ digital asset and stick with it

After bear mar­kets, cryp­tocur­ren­cy mar­kets have always bounced back to regain their loss­es. For the most part, blue-chip cryp­to assets tend to have more stay­ing pow­er in a mar­ket rid­dled with tens of thou­sands of copycats.

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

“The more sta­ble the dig­i­tal asset is, the more unlike­ly an investor will be to lose his or her mon­ey. Suc­cess­ful investors shun the prospects of exces­sive gains dur­ing cryp­to win­ters and rather, sue for low-risk invest­ments that have a guar­an­teed rate of return.”

While no cryp­to asset is with­out its own inher­ent volatil­i­ty and risk, “invest­ment funds should be prop­er­ly allo­cat­ed with ade­quate pro­vi­sion for mar­gin­al loss­es,” said Esparza.

Rebalance your portfolio 

The bull mar­ket may have inor­di­nate­ly grown the pro­por­tion of cryp­to in your port­fo­lio. If that is the case, rebal­ance your port­fo­lio. Iakov Levin, the Midas Invest­ments CEO, pro­posed “to sell all low-liq­uid dig­i­tal assets.”

“For exam­ple, var­i­ous alt­coins with a low cap­i­tal­iza­tion, up to $100 mil­lion – [sell] if there is no spe­cif­ic fun­da­men­tal pre­con­di­tion for their growth dur­ing the cur­rent bear mar­ket,” he said. “Users can also cre­ate hedged DeFi strate­gies, where they make prof­its on a mar­ket decline.”

Keep your eyes on the prize

Regard­less of how deep the cryp­to mar­ket decline could be, it is impor­tant for investors to main­tain per­spec­tive on the long-term fun­da­men­tals of invest­ing in this grow­ing indus­try. Mar­kets have his­tor­i­cal­ly bounced back from any down­turn. That means do not pan­ic sell your blue chips or act rashly.

“Since it feels like every­thing is work­ing in boom times, it’s tempt­ing to want to do every­thing. Main­tain a high bar for chang­ing or expand­ing your scope,” Par­a­digm co-founder Fred Ehrsam, wrote in a pre­vi­ous blog post.

“The same idea is true in a down­cy­cle. The cryp­to grave­yard is lit­tered with the remains of com­pa­nies who piv­ot­ed away from their core mis­sion in a down­cy­cle, only to watch with anguish as their idea start­ed to work in the next upcycle.”

While Ehrsam’s mes­sage may have been pri­mar­i­ly tar­get­ed at cryp­to founders, it holds equal­ly true for ordi­nary investors.

Disclaimer

All the infor­ma­tion con­tained on our web­site is pub­lished in good faith and for gen­er­al infor­ma­tion pur­pos­es only. Any action the read­er takes upon the infor­ma­tion found on our web­site is strict­ly at their own risk.