Crypto Winter Strategy: How to Survive Extended Market Declines

The ongoing decline in the cryptocurrency market could be very frightening. Where is the market going? Are we in a bear market? How long it will take? It’s difficult to say. Yet a moment like this, when the crypto markets are shaky and directionless, could be a time to figure out what to do (or not do) with your investments.

Crypto markets have fallen sharply this year, with Bitcoin now down more than 70% from its record closing high set in November 2021 to confirm a bear market, also known as crypto winter, that began with the collapse of the Terra blockchain in May.

Aside from bitcoin, almost every other cryptocurrency of any importance declined. Ethereum (ETH), the second largest digital asset, is down 73% from its all-time high. Solana (SOL), Cardano (ADA) and Binance Coin (BNB) are all in the red.

This is just the latest in a cycle of severe Bitcoin crashes since 2011 — the leading cryptocurrency’s fifth such notable crash to date. Each time, Bitcoin’s price has tended to trade below its previous high for three or more years.

But the 2022 crypto bear market feels a little different — because it is. June’s 40% monthly loss was Bitcoin’s sharpest drop since September 2011.

While past crashes have been fueled by problems with massive exploits from exchanges like Mt. Gox and Coincheck and clumsy regulatory intervention, this year’s crypto winter represents a combination of difficult macroeconomic conditions, geopolitical tensions, and dubious projects/decisions by crypto founders.

Amid growing fears that the Federal Reserve’s expected aggressive rate hikes would push the US economy, the world’s largest, into recession, observers say the current crypto winter could likely hurt more and last longer compared to previous bear markets.

Survive the bear market

Here’s what you might want to do — and avoid — if you’re weathering a sustained market decline.

Keep investing consistently

Periods of heavy losses, so-called bear markets, can also be a part of crypto investing, as can the far smoother runs during bull markets.

“Users can hold part of their portfolio in stablecoins to stick with the dollar cost averaging (DCA) strategy,” Iakov Levin, founder and CEO of cryptocurrency investment platform Midas, told Be[In]crypto.

He said investors could use the funds to buy core crypto assets like BTC and ETH, as well as other key layer-one and layer-two solutions.

“I see the DCA strategy as a long-term solution for six months to a year. Such a strategy provides users with a good entry point and allows them to earn satisfying profits during the next bull cycle,” added Levin.

Dollar cost averaging is the practice of regularly investing the same amount of money regardless of asset price, in this case crypto prices, according to the omniscient online financial dictionary Investopedia.

This strategy is a form of systematic investing that can potentially offer efficiencies when the market has fallen.

Choose a “stable” digital asset and stick with it

After bear markets, cryptocurrency markets have always rallied to recoup their losses. For the most part, blue-chip crypto assets tend to have more staying power in a market riddled with tens of thousands of imitators.

“A proven way to stay afloat during times of crypto winter is to avoid extremely volatile digital currencies,” Chris Esparza, founder and CEO of decentralized finance platform Vault Finance, told Be[In]crypto.

“The more stable the digital asset, the less likely an investor is to lose their money. Successful investors shun the prospect of excessive gains in crypto winters, preferring to lament for low-risk investments with a guaranteed return.”

While no crypto asset is without its own inherent volatility and risk, “mutual funds should be properly allocated with adequate provision for marginal losses,” Esparza said.

Rebalance your portfolio

The bull market may have excessively increased the percentage of crypto in your portfolio. If so, rebalance your portfolio. Iakov Levin, the CEO of Midas Investments, suggested “selling all low-liquidity digital assets.”

“For example, various altcoins with a low capitalization, up to $100 million – [sell] when there is no specific underlying condition for their growth during the current bear market,” he said. “Users can also create hedged DeFi strategies where they make profits when the market falls.”

Pay attention to the price

No matter how deep the crypto market drop might be, it is important for investors to keep in mind the long-term fundamentals of investing in this growing industry. Markets have historically recovered from every downturn. That means don’t panic sell or rush your blue chips.

“Since it feels like everything works in boom times, it’s tempting to want to do everything. Keep the bar high to change or expand your scope,” wrote Fred Ehrsam, co-founder of Paradigm, in a previous blog post.

“The same idea applies in a downcycle. The crypto graveyard is littered with the remains of companies that strayed from their core mission in one down cycle, only to watch in agony as their idea began to work in the next up cycle.”

While Ehrsam’s message was primarily aimed at crypto founders, it applies equally to regular investors.

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