Summer comes but once a year (and boy are we feeling it in 2022!) and so does winter. But in the crypto world, you never know when — or how long — the dreaded “crypto winter” will hit, but when it does, it can wreak havoc on your digital portfolio.
We are currently knee deep in the snow of a crypto winter. Panic selling has been in full swing, bringing freezing temperatures to the once-hot crypto market. NFTs streaking is apparently a daily occurrence, and downward fever streaks are red on the board. This crypto winter, Bitcoin, for example, fell from an all-time high of $69,044 a coin in November to a dismal $17,745 this June. Terra — now Terra Classic — was riding high in May but bottomed out to zero in June. Voyager went bankrupt; And mega hedge fund Three Arrow Capital (or 3AC) went MIA. It doesn’t get much cooler than that, but then again, it’s not over. Courtesy of Game of Thrones: Winter isn’t coming, it’s here!
Incorporate dollar-cost averaging (DCA).
Just like in traditional investments, this strategy of investing equal amounts at regular intervals, regardless of price, is applicable in the crypto world as well, reducing the pain of volatility in your coin investment. It is helpful to do. For example, you bought five Ethereum (ETH) coins in January for $3,500 each, but this summer it is trading at $1,300. Your initial purchase was $17,000. This investment is now worth $6,500. You have lost $10,500. It’s not a real loss, yet, but you’re down big. Now, let’s say you buy an additional three ETH for $3,900. You now have eight ETH worth $10,400. As your average is decreasing, your breakeven cost is also decreasing. By investing in small increments over time rather than all at once, DCA helps you take advantage of market fluctuations. In the example above, it would have been better to break the original five ETH purchase into smaller additional purchases.
Buy-and-hold indefinitely (or hold on for dear life — HODL)
Take a break from crypto and wait for prices to bounce back. HODL has weathered the ups and downs of crypto cycles and sold for high profits over the years. A person who can HODL through a 70% loss is the “boss”. Doing so requires a certain level of commitment. Most HODLers don’t care about ups and downs. They are investing for the long term to maximize returns, just like investing in stocks.
Trading (all day and all night)
In a bear market, shorting cryptocurrency is a way to make money. Instead of trading on the hope that a coin will go up, you trade on the assumption that the coin is going down and take advantage of the profits that result. In my experience, shorting is a more common — and accepted — practice in the crypto world than in the stock market. Many traders trade long and short, but to do so successfully you must have a solid understanding of how cryptocurrencies are traded as well as the performance charts and price. How to “read” the actions of If you enjoy staring at charts and being glued to your computer screen all day — and night — then this might be right for you.
Watch the show from the sidelines
do nothing. Wait, wait, and wait some more for the coins to come down and then pounce and buy. Bag holders who overpaid for their coins will hate you, but you will be able to make huge profits when the crypto bull market returns.
Put your coins in cold storage
In crypto winter, move your funds to cold storage. Do not trust your funds on a centralized exchange (CEX). You can use a decentralized exchange to lend your coins through smart contracts. If you must use CEX, enter and exit as quickly as possible.
As for keeping warm during this crypto winter, here are some key takeaways to be aware of:
- Never — and I mean never — trade more than you can afford to lose. Crypto can be a great buying opportunity, but you can also lose your shirt. I recommend investing between 1% and 5% of your total portfolio.
- Dollar-Cost Averaging is a must or you will lose your sanity in a bear market.
- Don’t panic sell at a 70% loss. You’ll regret it in a bull market. HODL.
- Finally, winter always ends, and warmer seasons return.
Stay warm, friends.
The information presented by Crypto Coach and ZDNet is not intended as individual investment advice and is not tailored to your personal financial situation. It does not constitute investment, legal, accounting, or tax advice, nor is it a recommendation to buy, sell, or hold any particular investment. We encourage you to discuss investment options with your financial advisor before making any investments.