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What is Crypto Winter and How You Can Weather Through It

September 09, 2022 - 7 min read

A crypto winter is when the value of cryptocurrencies, especially Bitcoin and Ethereum, declines.

A decline in crypto community activity and enthusiasm is what’s come to be known as crypto winter, simply put. Before the market recovers and prices increase again, crypto winters may linger for months or worse, sometimes years. 

Even though they can be depressing for people who have made substantial investments in cryptocurrencies, market fluctuations are a natural element of any new industry. There is always optimism for future progress and investors’ interest rekindling. Crypto winters serve as a reminder of the inherent risks of investing in digital currency.

Since the peak of a significant surge in 2021, the value of cryptocurrencies has decreased by over $1.9 trillion. Bitcoin, the largest digital currency in the world, is 68% below its November all-time high of about $69,000. As a result of widespread market pessimism, it is more likely that the value of cryptocurrencies will decrease by double digits. For example, the current crypto winter is the most notable to date, with crypto markets losing roughly 60% of their value. Previously, total crypto holdings were valued at approximately $3 trillion but are closer to $1 trillion.

No predetermined threshold or percentage decrease indicates the beginning of crypto winter. Consensus holds that a significant and sustained market decline is the most telling sign that winter has arrived. It is the kind of thing where you just know it when you see it; it is all around you. 

How to Know You’re in a Crypto Winter

Since cryptocurrency is still relatively young, the “crypto winter” term is not as well established as its counterparts in other markets. If a crypto winter were to be compared to a bear market on the stock market, it would be considered to have occurred when values dropped by 20% or more from their previous highs.

This measure is down roughly 70% from its previous high, which unequivocally points to the onset of a crypto winter at the time of this writing. There are a number of indicators that you may be experiencing a crypto winter, including:

  • Price declines
  • Lower trading volume
  • Fewer new projects
  • Negative perceptions
  • Declining attention from the media
  • Declining adoption by businesses

How Often Does Bitcoin go Through a Crypto Winter?

During the past decade, the crypto winter has occurred multiple times. Each time, the price of Bitcoin has dropped, leaving investors feeling burned. Nonetheless, Bitcoin has always rebounded, achieving new all-time highs within a few years.

Recently, Bitcoin has endured what is known as the crypto winter, which began in 2018. However, Bitcoin’s price might suffer multiple rapid rallies, including one that would propel it past $60,000 in 2021.

Even though it is impossible to forecast when or how frequently Bitcoin will crash in the future, these prior incidents demonstrate that the cryptocurrency remains exceptionally volatile. Based on historical data, we may predict that Bitcoin has a crypto winter every 1.71 years on average, and there have been eight crypto winters.

How Long Does Crypto Winter Usually Last?

A combination of reasons, such as a general decrease in interest from investors, an increase in government regulation, or market uncertainty, is typically to blame for the asset depreciation during the crypto winter. Some industry professionals continue to question the reliability of Bitcoin’s four-year cycle and wonder if it still holds any significance.

It is difficult to determine the exact duration of a crypto winter, as the term is used to describe a prolonged period of decline in the cryptocurrency market. The length of each crypto winter has varied, and there have been numerous of them in the past.

Surviving The Crypto Winter

Realizing that market falls, even those that last for an extended time, are a normal and unavoidable part of the investment is one technique for surviving a period of prolonged market declines. As prices fall, this can assist investors in keeping their perspective, which can help them avoid panic selling. Here are a few strategies for surviving this time around:

Focusing on Large Capital Crypto Assets

There are just two cryptocurrencies that account for more than half of the overall market capitalization of cryptocurrencies: Bitcoin and Ethereum. The overall value of the cryptocurrency market is estimated to be $833 billion, Bitcoin’s market cap is currently at $320 billion, and Ethereum’s market cap is currently at $148 billion. Due to this, many investors consider Bitcoin and Ethereum to be blue-chip cryptos. 

Compared to the rest of the cryptocurrency market, these two cryptocurrencies present a lower level of risk and exhibit lower levels of volatility.

They have successfully rebounded each time they have been subjected to severe market downturns in the past. On the other hand, younger cryptocurrencies introduced during the last bull market do not have a history of bouncing back, which means we are still determining what will happen this time.

Have Knowledge About Dips

The value of cryptocurrency tokens shifts constantly, sometimes moving in a favorable direction and other times moving in the opposite direction throughout the day. This is an inevitable consequence of investment. Additionally, investing in a developing market such as cryptocurrency can be unpredictable and risky, which is a fact that all investors should be aware of before purchasing any cryptocurrency. This is especially important to keep in mind while investing in Bitcoin.

A significant amount of volatility has been going on for quite some time now, but getting anxious about your holdings will not boost your future prospects. Maintain your composure, be aware of the dangers associated with investing, and only put money into an investment if you can afford to lose.

Diversify Your Holdings

Experts encourage investing in low-cost, diversified index funds since these funds have low expense ratios or fees, which are advantageous for all investors. Since cryptocurrency is a high-risk investment, experts recommend allocating at most 5% of your whole portfolio.

It is advised that investors should diversify not only their assets but also their storage locations. Numerous platforms, exchanges, crypto wallets, etc., can be utilized. Moreover, investors must be able or willing to shift their assets off particular media and into a hot or cold wallet to confirm that they genuinely possess and own them.

There are thousands of distinct cryptocurrencies to choose from today. Diversification is essential to a successful crypto portfolio, just as it is the key to a successful stock portfolio. For instance, comparing the top 100 cryptocurrencies on CoinMarketCap, it is feasible to classify these coins into other categories. Selecting cryptocurrencies from multiple baskets can add fundamental diversification to your portfolio.

Don’t Invest More Than You Can Afford to Lose

The golden rule of investing in high-risk assets is only to use the money you are willing to give up if the investment fails. A total collapse in cryptocurrency’s value could jeopardize your long-term ambitions if you buy Bitcoin with the cash you need for other financial goals. If you are unable to afford to wait for prices to recover again, you may find that you have little choice but to sell your assets at a loss.

Make sure that cryptocurrency only accounts for a modest percentage of your total wealth. If cryptocurrency is unsuccessful, you will still have access to other assets considered safer. Prices may surge once the cryptocurrency market stabilizes. However, given that they will likely improve, you should put only some of your eggs in that basket.

Final Thoughts

Winter is the most trying of the seasons since it has the shortest days, the darkest and coldest weather, and the feeling that summer’s warmth is so far away. Nevertheless, the seasons continually shift, so better times are just around the corner. The same can be stated about the cryptocurrency market and the crypto winter we are all currently experiencing. A quick look at the market history reveals that the market can rebound even after difficult circumstances.

However, when cryptocurrencies reached record heights in 2017, followed by a slide into the most recent crypto winter that lasted from 2017 to 2020, Bitcoin made a spectacular comeback and reached an all-time high of $65,000 in February 2021. We have no choice but to keep our fingers crossed that the recovery process will be the same this time.

It’s possible that the crypto winter hasn’t even reached its high point yet, but now is the time to stay strong and trust the market, as the widespread use of blockchain and cryptocurrency technologies will play an essential part in the future of our economies.

To level up and gain a deeper knowledge of all things related to the future of the cryptocurrency industry, check out the latest content in the Supra Academy section.

Disclaimer: This article is for informational purposes only and is not financial or investment advice. This should not be used as the foundation for making investment decisions, as a suggestion to enter into any transaction, or as a suggestion to partake in any investment strategy. 

References

  1. Basulto, D. (2022, 17 Nov.). 3 tips to survive the crypto winter and become a better long-term investor. The Motley Fool
  2. Becker, S. (2022, 19 Aug.). Why this crypto winter is different, and what investors should know about it. NextAdvisor with TIME
  3. Powell, F. (2022, 14 Oct.). Crypto winter is here: What you need to know. Forbes Advisor
  4. Tham, N. (2022, 25 Aug). Bitcoin has crashed 68% from its peak — but one bull says the latest crypto winter is a ‘warm winter’. CNBC
  5. Wilser, J. (2022, 9 Aug.).  9 survival tips for crypto winter. CoinDesk

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