Tips for Crypto Winter: Surviving Amidst High-risk Environment

• Neeti
• March 12, 2024

‘Winter is coming!!!’ All the GOT fans out there, you know how nerve-curdling the word winter felt when you first heard it in the HBO series. With an element of uncertainty, the phrase made the viewers’ blood turn into jelly when they found themselves anticipating the approaching chaos set to fall on the land of Westeros. What gained popularity as a crazy slang from a web show is now engulfing the global crypto market. The phrase has notoriously inspired the recent turmoil in the decentralized sector called ‘crypto winter.’

As cold as it may sound, the term has brought severe unrest in the crypto cocoon. It is scary, uncertain, and shamelessly happening when you read this article as it started when we ushered into the new decade of crypto evolution.

In 2020, crypto surged when the global economy reached a standstill because of the COVID-19 pandemic. Investors moved toward the digital asset arena to grab a share of the expanding market. The rally encouraged active participation from new-age investors who were eager to explore the dynamics of the sector.

As we moved to 2021, crypto became one of the juiciest investment resources. The price of Bitcoin and other top-rated coins reached new heights. NFTs and Metaverse intrusion further pushed this crypto rally and paved the way for never-seen-before trading opportunities. However, the situation changed as we moved to the later part of 2021 as crypto fever began settling. The continuous price fall in the value of cryptocurrencies did no good, and soon investors started losing interest in them.

Interestingly, things haven’t changed much in 2022 as Bitcoin remains at its lowest, with Ethereum and XRP following the same trend. The continuous six months of bearish price market has compelled investors to ponder the consequences of the rampant volatility in the industry. To describe this situation, experts coined the term ‘crypto winter.’ In this article, we will explain the phrase and then discuss the tips investors can use while facing crypto winter. So, have a look:

What to Infer From Crypto Winter?

Crypto winter is a market situation when token prices fall and remain in the same state for an uncertain extended period. Like stock markets, cryptocurrency markets also work on certain patterns, which cause ups and downs in the sector. Cryptocurrency winter represents the market crisis where prices have plummeted dramatically and then continued to stay the same for weeks or months. Well, for those who are new to the industry, let us tell you that this is not the first crypto winter for us. There have been many of them in the past. The phrase was first used in 2018 when BTC lost more than half of its market cap, causing an industry-wide fall.

For instance, the market was at a massive low from the 2018 start until December 2020 end, when prices were off the board from the previous high. Since November 2021, the crypto industry has witnessed a fall of nearly 60%, bringing its worth to $1 trillion from $3 trillion. However, post this, things began to improve as we witnessed the bullish market settling in.

There are no industry-accepted guidelines to define what exactly a crypto winter is. It is not explicitly elaborated as to how far the prices must plummet to enter a crypto winter season. Although, when market experts and influencers announce its starting period publicly, we accept it. This was the case in 2022, when crypto prices began falling for many reasons. The industry was reeling under the effects of world events such as the Russian invasion of Ukraine, which drastically brought down the global financial space. With regulatory authorities like USA’s SEC pulling the strings over crypto, it was evident that the sector will face a bleak future.

How did it begin?

As mentioned above, there is no clear-cut definition of crypto winter’s starting and ending period. Experts suggest that they usually start when investors indulge in a rigorous sell-off soon after enjoying the all-time highs in the market. For example, the price value of BTC was $68,990, a 52-week high, in November 2021, right before it began to plunge.

The token price has been exceptionally low by over 70% since November 2021 and has remained so. A similar path was followed by the second-largest crypto coin, Ethereum, where its value fell by 74% post reaching its peak in November.

The crypto realm soaked in unprecedented success during 2020 end and through 2021 because of the liquidity expansion by the Federal Reserve in the financial market. This surged the popularity of crypto, unlocking massive growth in the sector. Thousands of projects were infused into the market in 2021, making it a potent option for investors. However, soon things took an ugly turn. Speculations of the Federal Reserve increasing the control of monetary policies over crypto flooded the market with uncertainties. Institutional investors ushered into panic selling fueled by the rumors, some even trading off the assets at a loss.

Tips to remain Safe In Crypto Winter

Investing in crypto is already a risky endeavor, so the token owners’ situation worsens when the market moves to a bearish phase. Acting prudently can always be helpful in the long run. The pointers given below are some tips that can help you sail through the crypto winter season. Take a look:

• Put your best efforts into Planning

When the first crypto winter came in 2018, various crypto ventures couldn’t take the harsh blow and survive it. The sector is more developed at present, but crypto projects could still fail when experiencing unfavorable circumstances. The effect of such instances is bigger for small projects than established ones. So, it is in your interest to stick to well-established projects that have managed to build a brand for themselves in the domain.

Crypto firms and exchanges also face the repercussions of crypto winter. In recent months, top exchanges have reduced their operations and laid off staff members to cut expenses. Gemini talked about the impact of crypto winter on its blog post and blamed it for its job cuts. Popular crypto lender Celsius froze withdrawals for its users. It is profitable for investors to figure out the safety measures before using a custodial wallet or exchange. It is good to shift assets to a wallet you control to avoid failures.

• Make Informed Choices

When investing in crypto, be aware that risks will come in handy. So, it is only prudent to invest funds to the limit you can afford to lose in case of a downturn.

If you invest all your money in building a portfolio consisting heavily of crypto, a sudden market collapse can put you in a block with no safe escape. The situation can also derail the long-term plans and push the investor into selling off their assets at a loss.

To avoid this, one should always make a priority list highlighting all the important financial goals with a priority rank attached to them. Create an emergency fund for future crises. Pay off debts before locking funds in a crypto project. One’s investment portfolio should combine various resources so that others can fill the space with profits if one fails.

• Study your Portfolio

During a global crypto winter, the first step to undertake is to study and reevaluate the investment portfolio. Analyze the present situation well and restrain from investing further in volatile assets.

When going through the portfolio, find projects that do not have long-term sustenance power. Small altcoins or NFTs are likely to suffer the most in such situations. The push can, to some extent, wipe off such ventures easily. It is a good time to analyze your portfolio, declutter it, and reduce the risk.

• Trust Reliable Sources

Presently there are thousands of crypto projects hovering over the market space. Due to limited knowledge, these projects easily jostle the investors’ attention. Social media portals with overflowing information and self-proclaimed crypto analysts are worsening the situation. Hence, it is on an investor to take a step forward and keep trust in reliable sources only. They should restrain themselves from trusting every other information and fact offered to them.

Verify the information before making decisions and avoid getting tempted by unrealistic offerings. Top-rated coins like BTC and ETH are pricey but have a brand value and are trusted by millions. Always review the basic facts related to a project, such as its market cap, supply, promoters, etc.

• Don’t go for Behavioral Biases

Avoid behavioral biases such as loss aversion or anchoring when dealing in crypto. The price trails during the 2021 rally cannot be achieved abruptly. If you are looking forward to seeking recovery in a hurry, then come out of that bubble. Indulge in booking losses as the market is likely to stay in unfavorable conditions for longer.

• Prepare for Future Price Falls

There rises an urgency to ‘buy the dip’ on social media platforms when the crypto market plummets. This is a wise choice in some situations but can turn fatal in others. Crypto is dynamic, so there always exists a high probability that the prices might fall further rather than move upwards. Some traders use dollar-cost averaging to chalk out the volatility. This involves purchasing smaller amounts of assets at regular time intervals.

Conclusion

When it comes to predicting the future of the crypto arena, there exists no set formula as the sector comes packed with high volatility and uncertainty. Crypto winter is one such situation where the market fails to live up to the investors’ expectations and falls flat to a painful extended period of loss.

Some investors indulge in panic-selling while others keep their assets intact with a hope of a future recovery. We are still in the bearish market, looking forward to some fresh rain that would soothe the aggravating heat brewing in the sector. Let’s be hopeful and prepare ourselves from the pro tips given here to sail past everything.