The continued decline of the cryptocurrency market could be very surprising. Where is the market going? Are we in a bear market ? How long will it last? It's hard to say. However, a time like this, when the crypto markets are unstable and directionless, could be a time to figure out what to do (or not do) with your investments.
Cryptocurrency markets have fallen sharply this year, with Bitcoin now more than 70% below its all-time high recorded in November 2021 , to confirm a bear market , also known as crypto winter, that began with the collapse of the cryptocurrency market. Terra blockchain in May.
Almost all other cryptocurrencies fell along with Bitcoin. Ethereum (ETH), the second largest digital asset, has plunged 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 serious Bitcoin crashes since 2011 – the pioneering cryptocurrency 's fifth such notable crash to date. Each time, the price of Bitcoin has tended to last three or more years trading below its previous high.
But the 2022 cryptocurrency bear market feels somewhat different , because it is. The 40% monthly loss experienced in June was Bitcoin's biggest drop since September 2011.
While previous crashes were fueled by issues of massive hacks of exchanges like Mt. Gox and Coincheck and bumbling regulatory interventions, this year 's crypto winter represents a combination of difficult macroeconomic conditions , geopolitical tensions, and dubious projects/decisions by investors. crypto founders.
As fears mount that aggressive interest rate hikes expected by the Federal Reserve will push the US economy, the world's largest, into a recession , observers say the crypto winter The current one can probably hurt more and last longer, compared to previous bear markets.
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Outperforming the bear market
Here's what you may want to do, and avoid doing, as you navigate a prolonged market downturn.
Keep investing constantly
Periods of huge losses, so-called bear markets , can be just as much a part of cryptocurrency investing as much more enjoyable runs during bull markets.
“Users can keep part of their portfolio in stablecoins to stick to the Dollar Cost Averaging ( DCA ) strategy,” Iakov Levin, founder and CEO of crypto investment platform Midas, told BeInCrypto.
He said investors could use the funds to purchase core cryptocurrencies like BTC and ETH , as well as other major Layer 1 and Layer 2 solutions .
“I see the DCA strategy as a long-term solution of six months to a year. Such a strategy gives users a good entry point and allows them to make satisfying profits during the next bull cycle,” added Levin.
Dollar Cost Averaging is the practice of investing the same amount of money on a regular basis, regardless of the price of the asset , in this case, the prices of cryptocurrencies.
This strategy is a form of systematic investment that can potentially offer efficiency when the market has fallen.
Pick a “stable” cryptocurrency and stick with it
After the bear markets , the cryptocurrency markets have always risen 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 crypto winter times is to avoid extremely volatile digital currencies,” Chris Esparza, founder and CEO of decentralized finance platform Vault Finance, told BeInCrypto, adding:
“The more stable the digital asset, the more unlikely it is that an investor will lose their money. Successful investors avoid the prospect of excessive profits during crypto winters and instead demand low-risk investments that have a guaranteed rate of return.”
While no crypto asset is without its own inherent volatility and risk, “investment funds must be appropriately allocated with adequate provision for marginal losses,” Esparza said.
Rebalance your investment portfolio
The bull market may have inordinately increased the proportion of cryptocurrencies in your portfolio. If that's the case, rebalance your portfolio. Iakov Levin, the CEO of Midas Investments, proposed to "sell all illiquid digital assets."
“For example, several altcoins with a small cap, up to $100 million, [sell] if there is no specific fundamental precondition for their growth during the current bear market,” he said. He in turn added:
“Users can also create covered DeFi strategies, where they profit on a market crash.”
Keep your eye on the long term
Regardless of how deep the crypto market downturn may be , it is important for investors to keep perspective on the long-term fundamentals of investing in this growing industry.
Markets have historically bounced back from any downturn. That means don't panic when selling your “ blue chips ” or act rashly.
“Since everything seems to work in good times, it's tempting to want to do everything. Hold a high bar for changing or expanding your reach,” Paradigm co-founder Fred Ehrsam wrote in a previous blog post , noting:
“The same idea is true in a down cycle. The crypto graveyard is littered with the remnants of companies that walked away from their core mission in one down cycle, only to watch in anguish as their idea started to work in the next up cycle.”
While Ehrsam's message may have been aimed primarily at crypto founders, it is equally true for ordinary investors.
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