Crypto Coach: How to Stay Warm During Crypto Winter

Summer only comes once a year. Even the winter. But in the world of cryptocurrencies, you never know when, or for how long, the dreaded “cryptocurrency winter” will last. But when it does, it can wreak havoc on your digital wallet.

We are currently in a cryptic winter snowfall up to the knees. Panic selling is unleashed, bringing freezing temperatures to a cryptocurrency market that, let’s face it, has been quite heated up to this point. The same for NFTs. During this crypto winter, bitcoin, for example, plummeted from an all-time high of € 58,300 per coin in November to a measly € 20,400 in June.

Terra – now Terra Classic – rose in May but dropped to zero in June. Voyager has gone bankrupt. And the mega hedge fund Three Arrows Capital (or 3AC) has disappeared. Yes, it’s cold. And that’s not all.

But consider this: a crypto winter, or even just a bear market, is a great opportunity to enter the market for the first time. Provided, of course, that you manage your risk correctly.

Here are some of my tips on how to stay warm during a crypto winter. But: I am not a professional financial advisor. The following suggestions are based on my personal observations and do not constitute financial or investment advice. Consult a financial advisor before making any investments.

1. Use the dollar cost method (DCA – average dollar cost)

Just like in traditional investing, this strategy involves investing equal amounts at regular intervals, regardless of the price. This also applies to the cryptocurrency world and helps reduce the effects of volatility on your coin investment. Let’s say, for example, you bought five Ethereum (ETH) coins for € 3,500 each in January, but this summer they are trading at € 1,300. Your initial purchase was € 17,000. This investment is now worth 6,500 euros. You have lost € 11,000. It is not yet a realized loss, but you have lost a lot. Now let’s assume you buy three more ETHs at € 3,900. You now have eight ETH worth € 10,400. On average, your cost for breaking even decreases. By investing in small increments over time rather than all at once, DCA helps you take advantage of market volatility. In the example above, it would have been better to split the initial purchase of five ETH into several small incremental purchases.

2. Buy and hold indefinitely (or hold tight for life – HODL)

Buy and hold forever (or hold on for life – HODL) – stop and wait for prices to go up. HODL is about withstanding the ups and downs of cryptocurrency cycles and selling for higher returns over the years. Yes, and a person who can HODL through a 70% loss is a “boss”. Of course, it takes a certain level of commitment to do this. Most HODLers don’t care about fluctuations; they invest long-term to maximize profit.

3. Sell and buy (day or night)

In a bear market, short selling cryptocurrencies is one way to make money. Instead of trading on the expectation that a currency will go up, trade on the presumption that the currency will go down and capitalize on the gains in this way. In my experience, short selling is a more common – and accepted – practice in the cryptocurrency world than in the stock market. Many traders trade long and short positions, but to be successful it is necessary to have a solid understanding of how cryptocurrencies are traded and to know how to “read” performance charts and price actions. If you like staring at charts and being glued to your computer screen all day and night, this might be the business for you.

4. Watch the show from behind the scenes

Doing nothing. Wait, wait and wait for the coins to hit the bottom, then jump and buy. Those who have paid more than you will hate you, but you can make huge profits when the bull market in cryptocurrency returns.

5. Put your cryptocurrency in a cold room

During a crypto winter, move your funds to a cold room. Do not entrust your funds to a centralized exchange (CEX – centralized exchange). You can use decentralized exchanges to lend your coins via smart contracts. If you have to use a CEX, get in and out as quickly as possible.

6. Use stablecoins

Inflation (currently 5.8% in France) continues to rise and investor returns do not follow. Therefore, the use of cryptocurrencies to protect your purchasing power through stablecoins is a hedge against inflation. You can generate higher returns by depositing your stablecoins in smart contracts or by lending them. The most popular stablecoins are backed by the US dollar and hold a 1: 1 value against the dollar. By far the most popular is Tether (USDT). It is the most liquid stablecoin and its market cap is $ 66 billion. It is the third largest cryptocurrency by market capitalization on USDC and USDT are the safest stablecoins to leverage.

7. Read, read and read again

During a cryptocurrency winter, take some time to hone your cryptocurrency skills by reading more about how to trade and reading charts or just learning about decentralized finance (DeFi) and stablecoins. I like learning about different blockchain technologies or trading on testnet platforms. If you are not familiar with testnet, some platforms allow you to trade with fake money to learn how to use their platform. It is similar to stock trading in simulation mode.

And to stay warm during this crypto winter, here are some essentials to know:

  • Never – and I mean never – trade more than you can afford to lose. Cryptocurrencies can be a great buying opportunity, but you can also lose your shirt. I recommend investing between 1% and 5% of your total portfolio.
  • Dollar cost averaging is a must or you’ll lose your sanity in a bear market.
  • Don’t panic, sell with a 70% loss. You will regret it in a bull market. HODL.

Finally, winter always ends and the warmer seasons return. Keep warm, my friends.

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