Crypto Winter Strategy: How to Survive Extended Market Declines
The continued decline in the cryptocurrency market can be quite staggering. Where is the market headed? Are we in a bear market? how long will it last? Hard to say. However, in moments like these, when the crypto market is teetering and directionless, it may be time to figure out what to do (or not do) with your investments.
The cryptocurrency market has fallen sharply this year, with bitcoin currently down more than 70% from its November 2021 closing high, confirming the bear market that began with the Terra blockchain crash in May, also known as crypto winter.
Almost every other major cryptocurrency fell along with Bitcoin. The second-largest digital asset, Ethereum (ETH), is down 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 major crash for the bellwether cryptocurrency so far. Each time, the price of Bitcoin has tended to remain below its previous highs for three years or more.
But the crypto bear market of 2022 feels a little different — because it does. The 40% monthly loss experienced in June was Bitcoin’s biggest drop since September 2011.
While past crashes have been triggered by massive exchange breaches like Mt. Gox and Coincheck and careless regulatory intervention, this year’s crypto winter has represented difficult macroeconomic conditions, geopolitical tensions, and questionable projects/projects from crypto founders/ combination of decisions.
As fears grow that the Fed’s expected aggressive rate hikes will push the world’s largest U.S. economy into recession, observers say the current crypto winter is likely to hurt more and last longer than previous bear markets .
weather the bear market
Here’s what you might want to do if you’re going through a prolonged market downturn — and avoid it.
Periods of major losses, so-called bear markets, can be a part of crypto investing, just as much more pleasant runs are during bull markets.
Iakov Levin, founder and CEO of cryptocurrency investment platform Midas, told Be: “Users may keep part of their portfolios in stablecoins to stick to a dollar cost averaging (DCA) strategy.”[In]cryptocurrency.
Investors can use the funds to buy core crypto assets like BTC and ETH, as well as other major layer-1 and layer-2 solutions, he said.
“I see a DCA strategy as a six-month to one-year long-term solution. Such a strategy provides users with a good entry point and allows them to make satisfactory profits in the next bull cycle,” Levine added.
dollar cost averaging According to Investopedia, an all-knowing online financial dictionary, cryptocurrency prices in this context are the practice of investing the same amount on a regular basis, regardless of asset prices.
This strategy is a form of systematic investing that may provide efficiency in times of market decline.
Choose a “stable” digital asset and stick with it
After a bear market, the cryptocurrency market always bounces back to regain lost ground. For the most part, blue-chip crypto assets tend to have more staying power in a market populated by tens of thousands of copycats.
Chris Esparza, founder and CEO of decentralized finance platform Vault Finance, told Be[In]cryptocurrency.
“The more stable a digital asset is, the more likely it is for investors to lose money. Successful investors eschew the prospect of excessive returns during the crypto winter and seek out low-risk investments with guaranteed returns.”
Esparza said that while no crypto asset is free from its inherent volatility and risk, “investment funds should be properly allocated and have adequate reserves for marginal losses.”
Rebalance your portfolio
The bull market may have overly increased the percentage of cryptocurrencies in your portfolio. If this is the case, rebalance your portfolio. Iakov Levin, CEO of Midas Investments, proposes to “sell all illiquid digital assets.”
“For example, various low-capitalization altcoins, up to $100 million — [sell] If there are no specific fundamental prerequisites for their growth during the current bear market,” he said. “Users can also create hedging DeFi strategies to profit when the market falls. “
Follow the prizes
No matter how deep the cryptocurrency market falls, it is important for investors to maintain a view on the long-term fundamentals of investing in this growing industry. Historically, markets have rebounded from any downturn. That means don’t panic sell your blue chips or act rashly.
“Because in boom times it feels like everything is working, it’s tempting to want to do everything. Keep the bar high for changing or expanding your reach,” Paradigm co-founder Fred Ehrsam wrote in a previous post road blog post.
“The same thinking goes on in a down cycle. The crypto graveyard is littered with the remains of companies that strayed from their core mission in a down cycle, only to watch painfully as their ideas start to play out in the next up cycle.”
While Ehrsam’s message may be aimed primarily at cryptocurrency founders, it applies equally to ordinary investors.
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