No. The eight seasons of game of thrones didn’t have an impact on me. But now, when someone says crypto winter is coming, it gives me genuine chills. That’s the beauty of this space, right? When everything is raging towards glory, you come up with whacky lingo, fun memes, and quirky terms. And when things go south? Well, you pretty much stick to your guns. The entire vibe of not taking money so “seriously” is unique to cryptoverse.
So today, we intend to talk about one such term thrown around on Crypto Twitter quite often. Crypto winter is an umbrella term used to describe bearish sentiment across the market. Of course, we witness downturns in other financial markets as well. But crypto winter is special because the downswings are often violent, sudden, and longer. So, how do you prepare for this event? What are the dos and don’ts? Stay with me while I walk you through these chilly roads!
What Is Crypto Winter?
Crypto winter is a prolonged period of downtrend in the prices of all major cryptocurrencies. The entire market tends to go sideways during this period within a specific range. Crypto winter also impacts investor sentiments as the overall environment can get gloomy due to inactivity.
If we were to point out differences, a stock bear market is usually characterized by a downward movement of the index. Whereas, for crypto markets, it crashes suddenly and then stays there.
During a typical winter, investors observe a flat return on their investment. Very soon, it turns into a game of waiting where the impatient ones who were in it for the money lose interest and leave while some of them stay in the hope of a sharp recovery.
When Does the Crypto Winter Begin?
It is a very subjective question. Crypto winter is not marked by breaching a specific threshold. Instead, it’s a combination of various external and internal factors. As a result, back-to-back unfavorable news creates a negative sentiment in the market.
At this point, all key influencers and market leaders agree on the arrival of the dreaded crypto winter. Can you guess when it began last time?
Without giving you a hard time, it was when the Ukraine-Russia matter escalated at the beginning of 2022, and simultaneously, central banks raised interest rates. To top it all, LUNA, a famous cryptocurrency, was burnt to ashes, wiping off $50 billion worth of investors’ wealth. All these events combined pushed us into a Crypto Winter.
The previous crypto winter was from late 2017 to early December 2020, when the prices skyrocketed.
What Should Investors Do?
When the going gets tough, the tough get going!
Crypto winter is the real test of your patience and conviction. If you researched thoroughly before investing in a cryptocurrency, it is time to put your skills to the ultimate test. If your analysis says that a cryptocurrency is fundamentally strong, then it is bound to bounce back.
Secondly, the key here is not to panic sell. There is a specific lingo designated to people who sell their holdings in a time of chaos. They are called “paper hands.” Don’t be one!
And finally, play the Buffet game. Be greedy when others are fearful. This is usually when your favorite crypto will be available at a massive discount. Even in the sideways market, the best strategy is to just automate your investments and keep buying in tranches to ensure that your portfolio is accumulating crypto at the best price.
Benefits of Crypto Winter Period
Say what? Benefits of a crypto winter? Am I a sadist or what? Well, turns out that the crypto winter could be a blessing in disguise for many. And I am going to spend the next few minutes proving that.
The crypto industry is at a very nascent stage right now. Very few products have found the product market fit and solved a real problem for the customers. For mass adoption to explode, we need a lot more such products.
And guess what? Crypto winters are a perfect time to build. As a company, you get the much-required noise-free environment to create joyful consumer experiences. In a bull run, there is just too much pressure to roll out the product that it impacts its quality.
Especially in the current winter season, most of the good companies have already secured funding. This means they should be loaded enough to continue to develop under the hood.
2. Survival of the fittest
Crypto winters are also a great way to shunt out the non-serious folks who were just here to make a quick buck. While there is no harm in seeking quick riches, it often dampens the morale of the space when these guys quit and leave.
In an industry so new, you would want believers and NOT someone who would sell at the first sign of distress.
Wanted to test that new trading strategy but just couldn’t amidst rapid ups and downs? Plan to pick up a new skill to improve your decision-making? Well, this is the signal you were waiting for. With constant tickers and price movements out of the way, it is a great time to hone your skills that will come in handy in the next bull run.
Tips on How to Survive Crypto Winter for Investors
While crypto winters may be beneficial in some aspects, you need to have a plan in place to reap its advantages. So let us talk about some pro tips to survive this season.
When markets go sideways for a prolonged duration, it is possible that the protocols won’t be making much revenue. In such a scenario, you need to make sure that your crypto is not stored on a platform that is capable of freezing your assets. Diversify and hold your investments across hot wallets (connected to the internet) and cold wallets (meant for long-term holding, not connected).
Apart from the storage, you must diversify your portfolio into different types of tokens. Once again, a similar logic applies. Many protocols and dApps are likely to fail amidst a cash crunch. Therefore, bet on a wider theme rather than investing heavily in a single cryptocurrency.
Did anyone mention thematic investing? Well, you are in luck. I have this amazing tool that can help you do that seamlessly. Coin Sets by Mudrex allows you to invest in a basket of cryptos. These baskets are managed and rebalanced by experts, taking the load off your shoulders.
2. Unlearn and relearn
Unless you are a time traveler, it is hard to have 100% accuracy when it comes to trading or investing. Now that markets are silent for a while, it would be a good time to reflect on your mistakes and try to bounce back harder when the opportunity strikes again.
Use this period to explore more about the space, and understand what worked and what did not. Just like every other market, crypto is cyclical in nature. Your efforts will be rewarded handsomely when the time is ripe.
Imagine you wanted to buy a cryptocurrency, but your analysis always pointed out that it’s overvalued. Now is the time to double down on your research, explore more about those cryptos, and buy them while they are cheap.
If your research hits the bull’s eye, you are up for a multi-bagger return in the future.
Crypto Winter and Bear Market: The Key Differences
Think of a bear market as a superset to crypto winter. What this means is during a bear market, all the asset classes are generally tanking, and we see a renewed interest in government bonds and fixed deposits. Typically, a bear market will impact stocks, real estate, and the crypto market.
Crypto winter, on the other hand, is specific to cryptocurrencies. Most cryptos do not fall much in this period, but they definitely do not grow, either. It is a period where a lot of so-called “investors” leave the market, and the volume of exchanges tanks down.
Either way, both the crypto winter and bear market, albeit undesirable in the short run, are a necessary evil to trigger the next phase of growth.
If this is your first crypto winter, welcome aboard. It’s a phase that defines you as a person, for what doesn’t kill you makes you stronger. And history tells us that all the top-performing projects of the previous bull run (Polygon, Cosmos, etc.) were created in the preceding bear runs only. So hold on tight; things will get better soon!
1. Why does crypto have winter?
Just like every other asset class, crypto goes through cycles of ups and downs. However, one primary reason for it to move sideways for a longer duration is its size. Currently, crypto trading accounts for 1% of the total financial market. So, whenever the bear run sets in, people dump the riskiest assets like crypto before anything else. Apart from that, they do not see an alpha for taking an additional risk during these times.
2. When did the crypto winter start?
There is no fixed time for crypto winters to start. This time around, early signs of winter were visible from January 2022. Bitcoin started the year with a price tag of $48,000, and it has tumbled down to $18,000 now. Similarly, Ethereum began with $3,800 and has come down to $1,400 now.
3. How long does crypto winter usually last?
Usually, a crypto winter stays for about four years. However, the last season was an exception which ended only in a couple of years. This time, many experts think that the halving event (2024) might lead to the next bull run and take the prices to an all-time high.
4. Will crypto ever go back up?
Yes. Just like every other market, crypto is cyclical in nature. It goes through its ups and downs. In the current cycle, it is predicted that Bitcoin halving (an event where the Bitcoin reward is halved for miners, thus creating a supply shock) will lead to the next bull run.