By Edul Patel
The crypto market has been going through a downward trend with a sharp decline in prices since the beginning of this year. Even though all corrections are different and are caused by various factors, the current situation can be compared with the period between 2018 to 2020, which is commonly referred to as the ‘crypto winter’ in the market.
What is crypto winter?
Cryptocurrencies have undergone many price corrections until now in their history. There have been many cycles where bears have shown their control over the market. Generally, a bear market is associated with the period when prices fall around 30% from all-time highs. Most cryptocurrencies have fallen more than that since the start of this year. This poorly performing market is called a crypto winter which signifies the negative sentiment across the digital currencies. The phrase ‘crypto winter’ came into use from the HBO series, Game of Thrones. The period warns of trouble settling over the crypto market.
It could be quite challenging for hodlers as they see a lot of volatility in the market. Nonetheless, this is not the first time the market is witnessing such a period of correction. As discussed above, between 2018-2020, Bitcoin lost nearly half of its market value but got back stronger in November 2021, reaching its all-time high. Crypto winter is just a period like a conventional bear market but to an elaborated extent.
However, in the words of renowned poet, P.B.Shelley, “If winter comes, can spring be far behind?”
When does the crypto winter start?
Extensive periods of crypto winters are usually fuelled by a bunch of different factors. The year 2022 has started with many macroeconomic factors, such as the Federal Reserve hiking the interest rates, affecting the crypto market to a large extent.
Additionally, the de-pegging of the TerraUSD stablecoin in mid-May has taken the market into a downward spiral from which it has still not recovered. Even though BTC has been on a consolidation since early April, it started dipping in mid-May due to the de-pegging of the TerraUSD stablecoin. It fell to its lowest in June amid the Celsius scandal hitting the US$18,000 level, which is the weakest since December 2020. With a series of events, pulling the BTC price down, the market has been taking this as a sign of the start of crypto winter.
What is the advantage of this period?
During a bull market, all random projects and cryptocurrencies seem to be in a rocketship to the moon. All bear markets are usually the most suitable periods for price discovery and correction. Crypto winters filter out the weak projects pushing the most innovative ones to grow and validate their products. The cryptos that can survive this particular period can emerge beyond their positions after the revival phase of winter.
What should investors do?
Crypto winter is a great time for investors looking for an opportunity to purchase more cryptocurrencies for basement-level prices. But before taking any firm decision over investing, it is vital to research and analyze well and then make decisions. During a bear market, everything seems to be available at a bargain. It might be tempting to invest in random coins in hope of exponential returns. That is, however, a pretty novice decision.
Is crypto winter the same as a bear market?
A bear market is a term used to describe a poorly performing market; it can be stocks, cryptos, or even equities. But, crypto winter is users to refer to the crypto market where the cryptos run lower than usual. Most cryptos are affected during this phase. So investors need to plan for a market-wide downturn during crypto winters.
How to survive in the crypto market during this period?
One thing to remember during this period of prolonged price volatility is to remember that dips are a normal part of investing. Here are some tips that can help you navigate these times.
- Do not invest money that you can’t afford to lose
- Start planning how to survive in the bear market either through DCA or Dollar Cost Averaging.
- It is important to stay strong and avoid panic selling.
- Bear markets are usually fast and furious.
Crypto winters can make you feel low, but remember that bear markets are followed by bull markets too. In the stock market, history shows that prices have always recovered. Even though cryptos can be highly volatile, this sector has always bounced back. And came back strong. This is why research is very important before making investment decisions. As a long-term investor, following SIP or DCA can help you gain better risk-adjusted returns during these times.
(The author is CEO and Co-founder of crypto investment platform Mudrex. Views expressed above are those of the author and not necessarily of financialexpress.com)
(Cryptos and other virtual digital assets are unregulated in India. They are considered extremely risky for investment. Please consult your financial advisor before making any investment decision)