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2022 marked the onset of the latest crypto winter, with high-profile companies collapsing, cryptocurrency prices plummeting across the board and investors suffering widespread losses. This phenomenon is noticeable in all asset classes, like stocks and bonds when prices drop by 20% or more from their most recent highs, and it’s referred to as a bear market. But while traditional assets have a long history behind them and investors have a rough idea of what to expect during a downturn, the same can’t be said about cryptocurrencies.
Given that digital currencies are such a novel and highly volatile asset class, it’s difficult for experts and analysts to predict how the crypto winter is going to unfold. Crypto enthusiasts continue to check Bitcoin price movements on exchange platforms like Binance, looking for signs of improvement that could announce an upcoming bull run. However, making any price predictions at this point is rather futile. Therefore, many traders and investors are left in a state of confusion, fumbling for a way to survive what seems to be the harshest crypto winter to date.
Does that mean investors should do nothing and simply hope and wait for things to get better? Not necessarily. Even in trying times like these, there are certain strategies that can help crypto users weather the storm and make the most of their crypto investments.
Learn about the cyclical nature of the crypto market
If you look back at crypto’s price history, as short as it might be, you can easily notice there’s a pattern of rise and decline that repeats itself with regularity. The cryptocurrency market, just like all other markets, is cyclical. This means bull runs – when demand exceeds supply, investors’ confidence is high and prices are rising – are typically followed by bear markets –when the prices drop significantly and remain low for an extended period of time, leading to a crypto winter.
Since this has happened several times in the past, experts have strong reasons to believe this crypto winter will follow a similar trajectory and eventually subside, giving way to the next bull run. What makes things a bit different this time is the fact that it happens against the backdrop of slowing global economic growth. What’s more, the cryptocurrency industry is a lot larger now than it was just a few years ago and the current crypto winter follows a period of immense growth, so the losses are obviously also a lot bigger. This doesn’t mean that the industry won’t be able to recover, but it might take a bit longer than usual for the market to get back on track.
Diversify your portfolio
If you haven’t taken experts’ advice on diversifying your portfolio, it’s not too late to do it now. Putting all your eggs in one basket is never a good idea, as periods of decline like the ongoing crypto winter can wipe down your entire investment portfolio.
The smartest thing to do is to spread your investments across different cryptos and other assets like stocks and bonds. So, in case one of them fails to yield the expected returns or crashes, the rest of them will help you stay afloat. Obviously, selecting crypto assets randomly is not the right way to approach portfolio diversification. You need to do your due diligence and research each project before deciding if it’s worth investing in it or not. Reading the whitepaper, learning about the team behind the project, looking at previous all-time highs and performance, and checking out developers’ activity and online presence are the factors you should focus on when conducting your investigations.
Don’t let emotions cloud your judgment
Every investor knows that emotions are not a good counselor. However, keeping emotions in check during a bear market is a lot easier said than done. When emotions run high, people are more inclined to make rash decisions and act on impulse, and that can negatively impact their investments. If bull runs are dominated by the fear of missing out (FOMO), bear markets can give investors a serious case of FUD (fear, uncertainty, and doubt).
FUD is the reason people check charts obsessively to determine the best moments to buy or sell. While keeping your eyes on the charts might be helpful, turning it into a compulsion can have a detrimental effect. It’s also advisable to steer clear of the herd mentality and let yourself be influenced by what others are doing. Interacting with people in the crypto community can be beneficial, but you shouldn’t base your decisions entirely on what other people recommend. This is a time to reflect and act with caution, so patience and perseverance are key to keeping risks at a minimum.
Consider buying the dip
If experts are right and the crypto winter turns out to be just a temporary phase, buying the dip might be a sound investment strategy. This means investing in crypto assets when the prices have hit rock bottom in hopes of making a profit when the assets bounce back and thus increase the value of your portfolio.
While there is no guarantee that the cryptocurrency industry is going to recover, the past has taught us that cryptocurrencies have a tendency to appreciate in time, despite the sudden spikes and drops in value. That’s why crypto investments are generally more profitable long term. However, this doesn’t mean you should buy an asset and hold onto it indefinitely even if it leads to losses. If there are no signs of improvement and all signs point toward a permanent crash, you should sell the asset and adjust your investment strategy as you see fit.
The crypto winter is investors’ least favorite season, but as harsh as it might be, there’s no reason to freak out and abandon ship. You may not see high returns for a while, but if you tread with care, you’ll be able to withstand the bear market and survive until the next bull run comes along.