Introduction

Despite a late 2021 market rally that saw the global cryptocurrency market capitalization reaching $3 trillion, Bitcoin and other digital assets have been hit hard by macroeconomic turbulence. This has led to a sharp decline in crypto assets that has sent many of last year’s crypto adopters fleeing from this investment space. Just when crypto assets were showing optimism price, FTX’s catastrophic implosion sent a wave of panic selling through the crypto market. 

In the current market environment, many investors are apprehensive about the future of their crypto portfolio, with some considering exiting the market altogether. Recent ongoings at Voyager, Celsius, and the demise of Luna are good examples of why investors should be extremely vigilant. 

What is Crypto Winter?

Every four years, the crypto market thrives as new entrants discover the technology. However, after all the euphoria is at its peak, the market crashes and most investors sell off their digital assets. Market activity experiences a sharp decline, with crypto asset values falling by more than 20% from recent highs. 

Crypto winter is a phenomenon that occurs when cryptocurrency prices decline for a prolonged period of time. In addition to well-known digital assets such as Bitcoin and Ethereum, NFTs and less popular crypto coins and tokens also experience crypto winter. Despite its independence from other markets, crypto winters tend to coincide with other economic downturns such as a stock bear market.

What Steps Should You Take in a Crypto Winter?

1. Focus on Cryptocurrencies with Large Market Capitalizations

The market capitalization of Bitcoin and its track record of retaining value make it a promising choice for long-term investors. Furthermore, a crypto asset like Bitcoin is unlikely to experience large losses due to its large market cap and its long history of maintaining value. 

Considering the properties discussed above, Bitcoin and Ethereum (ETH) are the top two cryptos worth investing in. Both are the most sought-after investment options in crypto and can help hedge against inflation in some cases. A fundamental understanding of the differences between infrastructure coins and decentralised application (dApp) coins is also crucial. 

This is due to the fact that these investments have quite different risk profiles. Infrastructure coins bet on the ability of the technology to attract builders of potentially successful applications while infrastructure coins are based on an individual application’s success. 

2. Diversify Your Crypto Portfolio

In the world of financial markets, there are numerous ways for investors to find value. Foreign exchange, bonds, shares, ETFs, and cryptocurrencies are just a few. In order to successfully navigate the financial markets, it is important to understand the various assets in your portfolio and how to use them. For example, investing in crypto assets does not necessitate buying individual coins. You could purchase ETFs that automatically diversify your holdings.

It is important to diversify your portfolio to ensure that you are not dependent on one crypto stock for your returns. The higher the diversification, the greater the chances of making gains and the smaller the risk. 

3. Keep Investing Consistently

It is as much a part of crypto investing to experience periods of large losses, or bear markets, as it is to experience periods of many rewarding runs during bull markets. To avoid these spikes in value, investors might consider employing dollar-cost averaging. This is a strategy that enables them to lower the cost basis by buying more shares of an asset at regular intervals over time. 

In addition to eliminating emotion from your investment decisions, this approach gives you the opportunity to purchase assets at a lower price. As a short-term investment strategy for six months to a year, Dollar Cost Averaging gives users a good entry point, giving them a chance to make substantial profits during the next bull run. 

4. If you can afford it, Buy in the Dip

Investing at lower prices in cryptocurrencies could be a good strategy if you believe that the current bear market is only short-lived. An investor could do this with the hopes of gaining value when the price of cryptocurrencies rises again. As the market swings from overvalued to undervalued in an instant, you can capitalise on these swings to capture even more value. 

The notable disadvantage of investing in cryptocurrency assets is that it is riskier than investing in stocks/shares. The possibility exists that this unregulated market could collapse and disappear with investors’ money. However, Bitcoin has managed to weather numerous storms and continues to perform well. 

5. Avoid Investing in What You Cannot Afford to Lose.

A key rule in investing in high-risk assets is to only invest funds that you are willing to lose. Buying cryptocurrency with funds required for important financial decisions could distort your long-term plans if the cryptocurrency market collapses. 

As long as crypto represents only a small portion of your overall portfolio, you’re still protected if the crypto market crashes. Price fluctuations may eventually return to normal once the market recovers. 

Final Words

History indicates that market prices have always recovered after a long period of declined activity. Planning out for the worse while holding out for the best is essential to surviving long-drawn-out winters.