Winter Has Arrived – the statement alone is enough to keep a Stark on their guard, signifying troubled times ahead. But in today's decentralized economy, it is also an unwelcome phenomenon for crypto enthusiasts.
Crypto Winter is a popular term used to address the prolonged bearish era where the prices of assets plummet persistently over 20% of the prior high. Since Bitcoin reached a peak just shy of 70k in November 2021, it has fallen by over half.
Many altcoins have fallen even further with the continued market pessimism and negative news hitting the street daily. Many investors all over the world have found themselves in a frenzy, questioning their investor confidence and stamina to remain in the market.
But as they say – any fool can make money in a bull market! Your trading skills and investor psychology are best tested when the economy is slow and markets are volatile.
Bear markets present multiple investment opportunities with significantly lower risks. It is all about how well you can study the market and identify the opportunities coming your way.
Are you feeling too skeptical about stepping into or staying invested within the crypto space at such a critical period? If yes, continue reading this article to sort your doubts and make a calculated decision.
How is Crypto Bear Markets Affecting Investors?
Since November 2021, the crypto market is notably having a tough time since we peaked. The following downtrend since has been difficult to watch. Needless to say, crypto investors are not pleased.
Spooked by falling rates, more people are now trying to sell their cryptocurrencies to minimize potential losses, thus contributing to further reduction.
The downward trend in the digital currency space has forced many cryptocurrency enthusiasts to rethink their positions. According to analysts, the bear run in December 2018 forced traders to lose confidence. Those investors that moved to the sidelines often stayed there, missing out on the next bull cycle. Will this time be different?
However, there are two fundamental reactions observed as the markets fall.
Firstly, the bear run only impacts those who need immediate cash and plan to sell their assets.
Secondly, long-term investors don't need to panic or concern themselves with declining coin prices. Experienced investors often use this opportunity to add to their investments to lower their cost value. Lowering the cost basis will enhance their returns in the next bull market.
On the other hand, crypto platform executives consider this phase a golden opportunity to get rid of ‘bad players' and flush out excess leverage in the market.
According to them, this market downfall will ultimately eliminate a range of crypto projects that focus on minting money instead of contributing to the development of the blockchain industry.
Some believe after the dust settles, only the strong crypto exchanges and projects will remain.
Factors That Give Rise to a Cryptocurrency Winter Market
There is no fixed definition in the books to define crypto winter or bear market. However, experts consider an average drop of 20% or more to be troublesome.
Generally, such a condition in the stock market could directly result from multiple factors like slow economies, pandemics, political crises, etc. But when it comes to the fairly new crypto market, there is no vast data for analysts to examine.
Needless to say, the causes of a crypto crash may vary. Some of these indicators are:
⦁ Geopolitical Incidents – Events from the COVID-19 pandemic to the Ukraine-Russia war have impacted the demand and access for cryptocurrencies. During times of crisis, regular and institutional investors consider cash king until the situation improves.
Perhaps in the future, established cryptocurrencies and Bitcoin will be safe havens, like gold and silver, in times of uncertainty.
⦁ Rising Interest Rates – As the Federal Reserve's interest rates increase to fight inflation, less money circulates in the financial markets. This pulls liquidity from the market causing volatility.
⦁ International Regulations – Nation-wide crypto bans or restrictions related to crypto software or energy restrictions can lead to many mining operations going offline. As a result, there is increased uncertainty in the market.
⦁ Low Trading Value – With uncertain market fluctuations, traders can be seen holding their assets. It ultimately decreases the coin flow in the market. With less liquidity in the market, the swings up/down can be dramatic to watch.
How to Invest in a Crypto Bear Market?
Assess where you are putting your money into this space. Be careful of Crypto Exchanges that aren't well established and aren't transparent.
Many people panic-sell their digital assets in the bear run. However, if you want to turn your portfolio profitable, it is better to wait out the storm. Here are a few strategies that can help crypto investors become smart investors when the market gets tough:
Cover the Daily Costs
If you are an investor hoping to pay your next rent with cryptocurrency gains, here's a little reality check for you. During the bear run, you can only earn a profit if you are playing a long-term game. Therefore, match your lifestyle with the current paycheck and establish a savings account with enough padding to sail through the rough times.
Assess Your Options
No matter what the portfolio graph shows, it is always advisable to keep a hold on your wits and not make rash decisions. Start by asking about your purpose in the crypto space in the long run. Once you've found the answer to this question, you can move ahead accordingly.
The idea is to remove the emotional elements from your investment choices. Have patience and wait for the market to recover which is what smart money does to generate Crypto Wealth.
Use Dollar Cost Averaging (DCA)
This method works on the logic – don't put all your eggs into one basket! You can take your reserve fund and divide it into multiple parts.
For example, if you have $1,000 in savings, consider it as 10 packets of $100. Now, start investing with one packet and see if you are profitable or not. Doing so will help you stay safer and not push all your money into an asset that's not showing promising gains.
You can also set up a small percentage of your paycheck to be sent to your cryptocurrency exchange for scheduled purchases.
Smart investors use the DCA strategy to stay in the game over the long term and is a great tool to help them remain calm and confident with their investment decisions.
Diversify the Portfolio
Bitcoin should be the foundation of your digital asset portfolio. The recommendation is BTC makes up 50 to 60% of your portfolio, and the remaining in other crypto-related projects to spread out your risk.
Not all market segments follow the same pattern in the bear run. Therefore, you can invest in various categories like stablecoins, fast-growing new cryptos, DeFi coins and tokens, NFT-related coins, and more. Some of them will face fewer losses than others, thus giving you a better chance of gaining profits. But, please do your own research to build conviction in your investments.
And, to minimize risk exposure and losses to your overall wealth portfolio, don't stay concentrated in only one asset class like crypto.
Use this opportunity to invest in precious metals, such as silver and gold, as an insurance policy for your portfolio. They have a long track record of being safe investments that have survived thousands of years as a store of value and weathered worse things than crypto bear markets.
These days, you have more opportunities to enter the gold investment space for those seeking stability and planning for retirement.
You have reputable precious metal companies offering or specializing in Gold IRAs and Silver IRAs. With the addition of these types of investments, your precious metals basket such as gold bullion bars, gold coins, silver coins, and gold mining stocks becomes stronger.
The idea is to build a strong diversified safety net in a diversified and fortified wealth portfolio, with a blend of traditional investments and new-era investments.
There's no doubt in the fact that winter is already here. Analyzing the market patterns from Q1 and Q2 of 2022, it is safe to claim the crypto space is going through a bear market phase.
This space slowdown can directly result from factors like global events, high inflation, increasing federal reserve rates, and market rotation into bullish sectors like commodities.
With the collapse of BTC, Terra, and now Celsius, plenty of investors have been panicking, which can lead to crypto assets being sold near the bottom for a major loss.
However, a smart trader can still turn the losses on paper into gains by holding and patiently waiting for the markets to rise. Investing in major downturns creates life-changing wealth that could lead to early retirement when the market recovers.
One tool to keep your eye on is the fear and greed index. This tool helps gauge market sentiment. Typically, when the fear index reaches extreme levels, the bottom is soon.
Will this cryptocurrency market bear run come to an end by 2022 or not? This question is yet to be answered, but meanwhile, it appears, that we are going into a capitulation phase that hopefully forms the bottom!
If there is a silver bullet, these crypto bear markets should be welcomed as they present great buying opportunities for those who are willing to take a long-term perspective.
Remember, Dark Crypto Winters are where Millionaires are Made!
Frequently Asked Questions
⦁ What is crypto winter?
This is a bearish market phase where the value of assets dips by 20% or more continuously.
⦁ What is Dollar Cost Average (DCA)?
DCA is a method of crypto investing where you divide your savings into smaller segments. Here, you start by investing a smaller portion rather than going all in at once.
⦁ How to make money in a bear market?
There is a wise saying on Wall Street, “Bull Markets Make You Money, Bear Markets Make You Rich.” You don't want to look back in the future when the bull market returns and question why you didn't stay invested when times were tough and accumulate assets on the cheap.
⦁ When was the last crypto winter?
Last winter was observed in 2018.
Risk Disclosure: Any investments come with an inherent risk, where you could end up making less money than what you put in. Before investing your hard-earned cash, be sure to speak with licensed professional financial advisor first. Always remember that past performance is not an indication of future returns.
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