Winter is coming. No, this isn’t a dialogue borrowed from your favourite TV show. Unfortunately, it is the reality of the world that we live in. Amidst this economic turmoil, all assets have unequivocally decided to crash like there’s no tomorrow. For example, Nasdaq has corrected by ~30% since the beginning of the year. Back home, all currencies including INR have taken a plunge. What about crypto you ask? Well, for starters, this isn’t our first time.
Crypto winter refers to a prolonged period of sideways market. In other words, markets crash significantly in a short period followed by a period of no growth. And if you haven’t guessed it already, we are already knee deep in the latest crypto winter. After the latest crash of this epic crypto known as Luna (a topic for another day), Bitcoin has moved between 18–22k.
So in this one, not only are we are going to dive deeper into what crypto winter is. But we are also going to share some tried and tested methods of surviving such an event. Let’s get started!
Just like every other asset class, crypto markets are cyclical in nature. With an economic downturn and quantitative tightening, crypto markets tend to fall in double digits (sometimes more than half of the wealth is wiped off) from its highs. This is followed by an inactive period with low volumes and minimal price movement. This collectively is known as a crypto winter.
It is often characterized by a lot of players losing interest and quitting the market. Albeit all assets undergo a winter, crypto is specifically notorious for three reasons:
The noise in the bull run is paramount. In the previous run from May 2020 to May 2021, the price of Bitcoin rose from a measly $10K to a staggering $69K.
They say, ‘taller you are, harder you fall’. That’s true for cryptoverse as well. If the upside is so rewarding, the downside is equally brutal.
This means unlike the stock market where you could take a smart guess on the future of certain stocks, it is harder to make predictions in the crypto market.
This is because you don’t have any history in certain cases to understand the pattern.
Therefore, the probability of price recovery is not in your favour in cryptocurrency.
Well, no matter how much we deny it, the genesis of this term ‘crypto winter’ has been Game of Thrones. And just like that show, or life in general, we are going to take some precautionary measures to play it low and under the radar at least until the time is ripe.
Because let’s face it. Billionaires are made in the winter. Nobody has earned riches by investing in the bull run. Time to dive right in. Read on:
RCA or Rupee Cost Averaging is a practice of purchasing the cryptocurrency at regular intervals.
During the RCA, you often buy at a fixed date of the month, irrespective of the prices. This brings down your average purchase price and makes sure you accumulate more crypto at a discounted price.
The RCA method is best suited for individuals who are in it for the long term. Not only would this technique set you free from the anxiety induced by market fluctuations but also instill a sense of discipline.
2. Learn and Build
When your social media feed is full of Crypto related news, your friends are constantly narrating the sagas of their multibagger cryptos and every news channel is talking about the government’s stance on digital assets, it is safe to assume that it is extremely hard to learn during that period.
Quite often, firefighting mode prevents the individuals from upgrading their skillset. Use the crypto winters to reflect back on your mistakes and test out all the strategies you have learnt so far.
If you are someone who is working in web3, this is often touted as the best time to build. This is because there is no pressure from the market or VCs to deliver a half-baked product.
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The best feature of a sideways market is that it is comparatively more predictable than the regular swings of a bull run. This means it is fairly easy for a trader to assess long and short term assets based on their resistance and support levels.
In theory, you could make money off Bitcoin every day by predicting its movement between 18k to 22k.
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4. Bluechip or No Chip
If your horizon is longer than a quarter, it is better that you stick to blue chip projects like BTC, ETH etc. during this period. This is because newer cryptocurrency projects often have a dearth of funds.
This means it is no big deal if a lot of them go bust during this period. This has happened in the past with some of the top projects out there.
What we are trying to say is that you need to exercise more caution than ever before jumping into the altcoin rabbit hole.
Always remember these lines from P.B. Shelly’s Ode to the West Wind -
“If winter comes, can spring be far behind?”
Some of the greatest projects of this space (eg. Polygon, Cosmos) have emerged from the darkest crypto winters. So the moral of the story is resilience. The one who wins the battle of survival can reap the juicy fruits of wealth during the next cycle.
Until the next mooning!