Crypto Winter Strategy: How to Survive Prolonged Market Downturns

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. However, a time like this, when the crypto markets are unstable and directionless, could be a time to figure out what to do (or not do) with your investments.

The crypto markets have dropped sharply this year, with bitcoin now more than 70% below its record closing high in November 2021, to confirm a bear market aka crypto winterwhich began with the collapse of the Land blockchain in May.

Almost every other cryptocurrency of any importance declined along with bitcoin. Ethereal (ETH), the second largest digital asset, has plunged 73% from its all-time high. Solarium (SUN), Cardano (ADA) and Binance Coin (BNB) are all in the red.

This is just the latest in a cycle of serious bitcoin crashes since 2011 – the pioneering cryptocurrency’s fifth such notable crash to date. Each time, the price of bitcoin has tended to last three or more years trading below its previous maximum.

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

While previous crashes were fueled by issues of massive exchange exploits like Mt. Gox and Coincheck and bumbling 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 US economy, the world’s largest, into a recession, observers say the current crypto winter could likely hurt more and last longer, compared to previous bear markets.

Outperforming the bear market

Here’s what you may want to do, and avoid doing, as you navigate a prolonged market downturn.

Keep investing constantly

Periods of huge losses, so-called bear markets, can be just as much a part of cryptocurrency investing as much more enjoyable runs during bull markets.

“Users can 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 purchase 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 of six months to a year. Such a strategy gives users a good entry point and allows them to make satisfying profits during the next bull cycle,” added Levin.

Dollar Cost Average it is the practice of investing the same amount of money on a regular basis, regardless of the price of the asset, in this case, the prices of cryptocurrencies, according to the know-it-all online financial dictionary Investopedia.

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

Pick a ‘stable’ digital asset and stick with it

After bear markets, cryptocurrency markets have always rallied to recoup 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 imitators.

“A 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, the more unlikely it is that an investor will lose their money. Successful investors avoid the prospect of excessive profits during crypto winters and instead demand low-risk investments that have a guaranteed rate of return.”

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

Rebalance your portfolio

The bull market may have inordinately increased the proportion of cryptocurrencies in your portfolio. If that’s the case, rebalance your portfolio. Iakov Levin, the CEO of Midas Investments, proposed to “sell all illiquid digital assets.”

“For example, various small-cap altcoins, up to $100 million – [sell] if there is no specific fundamental precondition for its growth during the current bear market,” he said. “Users can also create coverages DeFi strategies, where they make a profit on a market crash.”

Keep your eyes on the prize

Regardless of how deep the crypto market crash may be, it is important for investors to keep perspective on the long-term fundamentals of investing in this growing industry. Markets have historically bounced back from any downturn. That means don’t panic when selling your blue chips or act rashly.

“Since everything seems to work in good times, it’s tempting to want to do everything. Set the bar high to change or expand your reach,” Fred Ehrsam, co-founder of Paradigm, wrote in a previous article. blog post.

“The same idea is true in a down cycle. The crypto graveyard is littered with the remnants of companies that walked away from their core mission in one down cycle, only to watch in anguish as their idea hit the ground running in the next up cycle.”

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

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