Crypto Winter- What Is It and How to Avoid Losses
Remember this famous phrase from the popular web series “Game of Thrones”?
“Winter is coming”.
It’s a sign of impending trouble that will soon set upon everyone on the firing line. That’s the current state of the crypto market and investors. Bitcoin, the backbone of this industry, has been continuously declining since it made an all-time high in November 2021. Almost all major cryptos have fallen off a cliff, while some have disappeared from the scene.
Crypto winter is a period of extended uncertainty and volatility, equivalent to a conventional bear market. The last crypto winter lasted almost three years, followed by incredible growth in 2021. Things are no different this time, except that external factors have contributed to the downturn.
The strenuous geopolitical situation in Europe impacted global markets. Rising interest rates and looming fears of recession followed this. Things got worse with the collapse of “Terra” ecosystem that triggered a sharp sell-off, wiping off billions from the market.
Recently, some reputed crypto platforms like FTX, Celsius, and BlockFi also filed for bankruptcy. While this breakdown does not pose systemic risks to the financial system, it certainly impacts investor sentiments. No one can tell how long the winter will last, but you can avoid losses by following these strategies.
Overcome the fear of missing out (FOMO)
A massive dip in the market followed by a dead bounce can be a trap for investors. In a bear market, any upside may be seen as a possible reversal. If you don’t do your research, you may end up investing at the wrong time. To avoid FOMO, one should always stay on top of the latest news and analysis from multiple sources. Do not fall prey to wishful thinking or follow the herd heading to the ‘moon.’
Steer clear of emotional trading
When building a portfolio, we all have some favorite cryptos that take up a significant portion of our investment. In such cases, it’s easy to indulge in emotional trading at the first sign of positive price action. This confines your ability to diversify capital in other markets, which is a potential loss. Setting goals ahead of the curve can help you mitigate losses in a sudden crash.
Have a long-term vision
“You do not lose until you sell.”
This statement perfectly applies to the crypto market, but not every cryptocurrency. You are bound to lose if you invest in some meme coin with no real-world utility. However, those invested in Bitcoin and trusted altcoins can reap the rewards if they hold it long enough. History has shown us that every time the market goes down, it eventually recovers. If your investing timeframe is long enough, any decline is just noise.
Even during the crypto winter, the market will provide you with plenty of opportunities to book profits. Convert a portion of your portfolio into stable assets whenever you can. This will lower your exposure and prepare you better for another dip. However, please avoid selling everything at once since you may lose out on potential gains. Furthermore, a sudden market reversal may trigger FOMO, leading to further losses in the event of a sell-off.
Crypto winter can be stressful for investors, but it also presents an excellent financial opportunity. The wheels of millionaires are set in motion during the bear market. It’s a silent period of development and innovation where several startups strive hard to prove their mettle in a competitive industry. Investing at an early stage can offer phenomenal returns within a few years!
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