Crypto Winter Is Difficult. Here Are 5 Crucial Survival Tips
Cryptocurrency is now experiencing one of the most severe bear markets in its 13-year existence. Here are our top market survival advice for investors hoping to manage the market and emerge stronger after the clouds lift.
Important Key points
Bear markets are where the money is earned, thus being involved and involved is critical for success in crypto.
When planning for the next leg up, second-order thinking and anticipated value are two useful mental models to employ.
Bear markets may linger for years, and crypto asset values might fall below everyone’s expectations, therefore patience is key for weathering the crypto winter.
Crypto investors have had a difficult year. Following a prolonged market rise that saw the global cryptocurrency market value reach $3 trillion in late 2021, Bitcoin and other digital assets have been hammered by macroeconomic uncertainty, suffering a fall that has driven many of last year’s new crypto users fleeing. Today, the market is valued slightly under $1 trillion, with Bitcoin and Ethereum trading more than 70% below their all-time highs.
While this year has put even the most ardent crypto believers to the test, early adopters have become accustomed to high volatility in both directions. Crypto has historically flourished every four years as new entrants find the technology and enthusiasm develops, but it has always seen major falls after the market frenzy reaches a pinnacle. These downturns have been dubbed “crypto winter” stages, and they are marked by major drops in market activity and interest, project washouts, and dramatic selloffs. Although few crypto enthusiasts enjoy bear markets, they might give an ideal chance to rest and regroup before the next market cycle. We give our top five suggestions for surviving the ongoing crypto winter in this piece. Those that follow them should be well-positioned to flourish if cryptocurrency gains traction.
During bad markets, they get wiped out. Simultaneously, the industry shifts its attention from pricing action, marketing, and hoopla to product and company growth. Some of today’s most prominent cryptocurrency projects, such as Solana, Cosmos, and Uniswap, were designed and launched during downturn markets. Ethereum, the world’s second-largest cryptocurrency, debuted in 2015, in the midst of the Bitcoin bear market, and traded below $10 until the 2017 bull cycle. Over the tail end of that cycle, in January 2018, Ethereum peaked at $1,430, offering astonishing profits for early investors.
This brings us to the second reason why staying put is critical for surviving the crypto winter and prospering in the next cycle. Many respectable cryptocurrencies are incorrectly characterized as Ponzi schemes.
Stay Put During Crypto Winter
While cryptocurrency winter might be difficult, it’s crucial to remember that bear markets are when many individuals generate significant riches. This is especially true in the case of cryptocurrency for two reasons.
One category includes ventures that lack basics, lack product-market fit, or are blatant frauds are “bigger fool” advantages. The larger fool idea in finance proposes that investors can occasionally profit from “overvalued” assets by selling them to someone else (the “fool”) for a higher price later. This psychological dynamic, exacerbated by herd mentality, leads to economic booms followed by enormous corrections. While all markets are vulnerable to volatility, crypto assets are more vulnerable, emphasizing the significance of being early.
Being early in crypto also entails remaining active, learning, and studying the market during a downturn cycle. Those who withstood the 2014–2016 bear market were among the most successful investors during the 2017 bull market. Similarly, many of those who gained a fortune in 2021 persevered through the arduous 2018 to 2021 period.
Above all, staying put is the most important ingredient in success when the market flips around.
Reassess Your Premise
Losing money is never enjoyable, but it may be a tremendous teacher. Crypto winter is a perfect time for investors to re-evaluate their investment thesis, reflect on any mistakes they made in the previous cycle, and plan for the next leg up.
An investment or an entire asset class falling 70% from its all-time highs might imply a variety of things. A big fall in an investor’s portfolio, for example, might indicate that the market has rejected their investing thesis, requiring them to reconsider their approach and restructure their portfolio to better represent the current reality. If this is the case, liquidating at a deficit and other investments may be justified
Conversely, a substantial drop does not always imply that an investor’s investment thesis is wrong. Instead, it might be a great time to double down. For instance, if the fundamentals of a coin improve, investors who loved it at $1,000 should appreciate it much more at $200. A decrease in the value of an asset does not always suggest that it is a poor investment. Many factors, many of which are exogenous or unrelated, might cause an asset to briefly decrease despite improving fundamentals. The aim of an investor is to pinpoint these market inefficiencies, purchase momentarily discounted assets, and then sell them at a better price after the markets have caught up.
Use Second-Order Thinking
Multiple factors contribute to each crypto bull cycle.
Every cryptocurrency bull cycle is initiated by many triggers and surrounded by various narratives. The 2017 bull run was defined by Initial Coin Offerings on Ethereum and the “blockchain, not Bitcoin” narrative, in which entrepreneurs generated millions of dollars selling essentially worthless tokens on hollow claims of tokenizing and decentralizing everything. The last bull run began with Bitcoin’s halving in 2020, coinciding with enormous post-pandemic money production that highlighted its value proposition as an apex inflation hedging asset. The cycle continued with a surge in food-themed decentralized apps on Ethereum during what became known as “DeFi summer,” before a mainstream surge in NFTs a year later gave rise to “NFT summer.” The 2021 cycle came to a conclusion with a quick climb and decline of alternative Layer 1 networks Terra, Solana, and Avalanche.
Those who correctly forecast the popular storylines made a fortune, while latecomers who couldn’t see where the puck was going fared less well. Predicting the prevailing narratives of the next cycle needs second-order thinking or profound contemplation that takes into account the long-term repercussions of numerous significant causally-linked events. In this way, investment is analogous to Keynes’ notorious beauty contest, in which investors must predict what other investors will think rather than what they themselves believe.
Given the greater fools phenomena in cryptocurrency, effective investment isn’t necessary about attempting to uncover ideas or assets that will exceed the market, but rather predicting the expectations of others. Whereas first-order thinkers might be attempting to determine if the future Layer 1 network Aptos will outperform Solana, second-order thinkers are attempting to determine which blockchain most naïve investors will believe is superior when the next cycle begins.
Consider the Expected Value
Another effective mental model to apply while attempting to withstand bear markets and crypto trading is to practice only making investments with positive anticipated value. The expected value (EV) in this context is the total of all potential values for a random variable, each value multiplied by its likelihood of occurrence.
Assume an investor is thinking about buying $1,000 worth of token X. The token in question is a volatile small-cap cryptocurrency with a 95% chance of falling to zero or a 5% probability of reaching $25,000 The following formula might be used to calculate the anticipated value of this investment:
EV = (-$1,000 x 0.95) + ($25,000 x 0.05) = $300
This shows that the anticipated value of the bet is positive, and that if the investor invested $1,000 in investments with the same odds forever, they would profit $300 each investment on average. In plain terms, if they made 100 investments ($100,000), lost all of them (-$95,000), but gained 2,400% on five of them (5 x $25,000 = $125,000), they would profit $30,000 ($125,000 – $95,000).
However, although incorporating projected value makes determining whether a certain investment is worthwhile simpler, simply a minor adjustment in the
a 5% probability of reaching $25,000 The following formula might be used to calculate the anticipated value of this investment:
Assumed factors may frequently transform a positive EV trade into a negative one. This means that correctly assessing the likelihood of certain occurrences occurring is critical for investing success. Furthermore, given the hundreds of cryptocurrencies on the market and investors’ limited funds, it’s critical to assess the expected values of different investment possibilities and only invest in a diverse selection of those with the greatest expected value.
Assume an investor is debating whether to invest $1,000 in Bitcoin or Ethereum at their current market pricing, and they believe they have the same 50% probability of success of either hitting zero or returning to their prior all-time highs In that instance, they may compute the anticipated value of both investments to determine which is more sound. Ethereum has a somewhat greater predicted value in this situation since it would have to appreciate more than Bitcoin to achieve its prior all-time high price.
During the winter, patience is necessary. Winter might persist longer than planned, which can be mentally taxing even for the most devoted believers. The present bear market occurs against the backdrop of the worst macroeconomic conditions since the Great Financial Crisis. It’s very feasible that cryptocurrencies will continue to fall or trade sideways for the next two to three years. Patience may be relatively simple for dormant investors, but for those with a considerable amount of their net worth invested in cryptocurrency it can be difficult.
Furthermore, bear markets are significantly less forgiving than bull markets, which means that not investing is frequently the wisest option. This is especially true given that the majority of cryptocurrencies on the market are down by more than 99% from their all-time highs. Many investors develop life-changing portfolios during bear markets, but patience, study, and foresight are required to make the proper movements and select the cryptocurrencies that will beat the market during the next leg up.
As this year has demonstrated, the cryptocurrency market is not for the faint of heart. While upside volatility may help cryptocurrencies fly to incredible highs during bull runs, it can also cause them to crash Likewise, with lengthy downturns. Those that adopt a long-term attitude and learn to enjoy downturns, on the other hand, have traditionally been some of the biggest winners in the field to far. Assuming crypto does not perish, the recommendations in this post should help investors plan for the next surge. We’re still in crypto winter, but the fundamentals haven’t changed. Anyone who considers the larger picture will have a lot easier time enduring crypto winter.