Beginner’s Guide On Crypto Winter: How to Invest During Crisis?

UTC by Beatrice Mastropietro · 9 min read
Beginner’s Guide On Crypto Winter: How to Invest During Crisis?
Photo: Shutterstock

Sometimes, the cryptocurrency market is in a crisis, with prices dropping and investors losing money. This has led to the term “crypto winter” being coined. But even during this hard time, there are opportunities to make money. This guide will discuss how to invest in cryptocurrencies during a crisis and what to look for when choosing a project.

If you are reading this, chances are that you have been affected by the crypto winter in one way or another. The bear market has taken its toll on many investors, with some even giving up on their investment altogether. However,  this does not mean that all is lost. In fact, this could be the perfect opportunity to start investing in cryptocurrency. Cryptocurrencies have had a wild ride over the past years, since their creation. Prices have swung from record highs to lows, and it’s been a bumpy ride for investors. Many people wonder whether or not they should invest in cryptocurrencies during this crisis.

Crypto Winter Defined

Crypto winter is a term used to describe the market conditions in the cryptocurrency industry. It is characterized by a prolonged bear market where prices of digital assets plummet, and investors lose confidence in the industry’s future.

The term was first coined in 2018 when the crypto markets experienced their biggest crash. At that time, the prices of Bitcoin (BTC), Ethereum (ETH), and other major cryptocurrencies fell by over 80% from their all-time highs.

This caused immense financial losses for investors and businesses involved in the industry. Many projects had to shut down and lay off employees. The market capitalization of the entire industry fell from over $800 billion to less than $200 billion.

It is still unclear what caused the crash. Some believe it was due to market manipulation by big players, while others attribute it to regulatory uncertainty and the bursting of the ICO bubble.

In 2022, another crypto winter started.

Cycles In Crypto Market

The crypto market is notoriously volatile. Prices can go up and down by large amounts very quickly. Some people believe cycles in the market which repeat over time.

If this is true, it could be helpful for investors to know when these cycles occur so that they can make better investment decisions.

There are two main theories about cycles in the crypto market: the four-year cycle and the Elliot wave theory.

The four-year cycle is also called the “Halving cycle” because it is based on halving Bitcoin’s block rewards. This cycle occurs every four years and is caused by a reduction in the supply of new Bitcoin entering the market.

Some people believe that this reduced supply will increase the price of Bitcoin as demand remains the same or increases. This theory is supported by historical data, as the price of Bitcoin has generally increased in the months leading up to a halving.

Meanwhile, the Elliot wave theory is more complex and attempts to predict market cycles based on investor psychology. The theory suggests that markets move in waves, each wave having a different psychological effect on investors.

Some people believe that the current market cycle is repeating the pattern of the dot-com bubble in the early 2000s. This bubble saw a rapid increase in the price of tech stocks, followed by a crash.

If this theory is correct, it suggests that the current bull market in crypto is due to end soon and that prices will crash.

Reasons for Crypto Winter

There are a variety of reasons that investors are still cautious about investing in cryptocurrency, even though the market has begun to rebound. The most significant reason is the lack of regulation surrounding digital assets. Below, we will discuss a few more reasons for crypto winter.

  • Lack of institutional investment. One of the key reasons for the crypto winter is the lack of institutional investment in the cryptocurrency market. Institutional investors usually invest in assets when they believe the price has bottomed out and there is growth potential. However, in the case of cryptocurrencies, most institutions are still cautious about investing in the market due to the volatile nature of prices.
  • Lack of mainstream adoption. Another reason for the crypto winter is the lack of mainstream adoption of cryptocurrencies. Cryptocurrencies are still not widely accepted as a mode of payment by merchants and businesses. This is one of the key hindrances to the mass adoption of cryptocurrencies.
  • Regulation. Another factor contributing to the crypto winter is the increasing regulation of the cryptocurrency market by governments worldwide. The uncertainty surrounding regulations is one of the main reasons why institutional investors are still hesitant to invest in cryptocurrencies.
  • Bearish sentiments. Finally, another reason for the crypto winter is the bearish sentiment that has been prevailing in the market for the past few months. The prices of most cryptocurrencies have been on a downward trend since the beginning of 2018, further dampening investor sentiment.

Crypto Winter vs Bear Market

When it comes to investing, there are generally two different types of market conditions that you need to be aware of: they are bull markets and bear markets.

A bull market is when the prices of assets rise, and investors feel optimistic about the future. A bear market, on the other hand, is when prices are falling, and investors are feeling pessimistic.

The term “crypto winter” is often used to describe the current market conditions in the cryptocurrency world. Prices have been falling for months, and many investors feel bearish about the future. However, it’s essential to understand that there is a big difference between a crypto winter and a bear market.

A bear market is simply a period where prices are falling. It doesn’t necessarily mean that the market is in a bad state or will never recover. On the other hand, a crypto winter is a specific type of bear market caused by a combination of factors.

The first factor is the general pessimism surrounding the cryptocurrency market for the past few months. This has led to a decrease in demand for cryptocurrencies, which has, in turn, caused prices to fall.

The second factor is the regulatory uncertainty that exists in many countries. Many governments are still trying to figure out how to deal with cryptocurrencies, which has led to uncertainty and confusion. This regulatory uncertainty has made it difficult for businesses to operate in cryptocurrency and has made it harder for people to buy and sell cryptocurrencies.

The third factor is the decline in using cryptocurrencies as payment. This is partly since prices have fallen but also because of the regulatory uncertainty mentioned above.

Cryptocurrencies are still in a very early stage of development, and it’s important to remember that bear markets are a normal part of the investment cycle.

Just because prices are falling now doesn’t mean they will never recover.

Crypto Winter 2022

The year 2022 started with many macroeconomic factors, including regulatory uncertainty, hacks, and fraud. The Federal Reserve hiked 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.

The crypto winter of 2022 began with a massive sell-off that wiped out billions of dollars in value. Further, Bitcoin dropped from $79,000 to $20,000, while the second largest cryptocurrency, Ethereum, tumbled from $4,000 to $1,000. Even the so-called DeFi sector was not immune, with many projects losing 90% or more of their value. The carnage was widespread and deep, with few market corners spared.

The crypto winter of 2022 has been a tough one. The prices of cryptocurrencies crashed, and the market went into a panic. Many lost a lot of money, and some even gave up on cryptocurrencies altogether. But, as with any market crash, there are always opportunities.

If you want to hold Bitcoin during a potential crypto winter, storing it in a cold storage wallet is important. A cold storage wallet is a digital piece of software that allows you to store Bitcoin offline. There are many cold storage wallets, so choosing the best for you is important.

The good news is that the crypto winter appears to be over. Prices have started to recover, and as of August 2022, there are signs that the market is stabilizing. While it will take time for the market to recover fully, the worst has appeared to be behind us.

The factors suggesting the crypto market is on the road to recovery include increasing institutional interest, positive regulatory developments, and maturing market infrastructure.

As the market stabilizes and grows, we will likely see more volatility in the short term. However, the market fundamentals remain strong in the long term. There is every reason to believe that the crypto winter of 2022 will eventually be a distant memory.

How to Invest During Crisis?

Analysts say that the crypto winter of 2022 has been worse than the one back in 2018, when the prices of major cryptocurrencies fell by more than 80% from their all-time highs. In  2022, the prices have declined despite the launch of major institutional investment products and an influx of new retail investors.

To profit from the crypto winter, investors need to be aware of the risks and opportunities it presents. And the first thing to understand is that the crypto winter is not just about the prices of cryptocurrencies falling. It is also about the psychological state of the market.

When the prices of cryptocurrencies are in free fall, it creates a lot of fear and uncertainty among investors. This can lead to irrational decisions and even panic selling.

The best way to invest in a crisis is to buy assets that are likely to hold or increase in value. Gold is a classic example of an asset that tends to do well in times of economic turmoil.

Other examples include real estate and collectibles such as art and wine. These assets can be expensive, so they may not suit everyone.

One more option for investing during a crisis is to buy assets that are likely to benefit from this situation. For example, companies that make products or services needed in a crisis, such as food or medical supplies, may perform well.

If you’re considering investing in stocks, you must research the companies carefully and invest for the long term. Trying to time the market is often a losing strategy.

Cryptocurrencies are a more speculative investment and are even more volatile than stocks. However, they can offer the potential for large profits in a short time.

Conclusion

To sum up, we need to keep in mind that crypto winter is affecting not all the digital assets, but only those highly dependent on the success of the Bitcoin network.

This guide is just the beginning of your journey in learning how to invest in cryptocurrency during a crisis. You must be willing to work and research to find the best investments for you. This guide has provided you with some basic information on how to get started. Use this as a foundation and build upon it to create a solid strategy that works for you.

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FAQ

What is crypto winter?

Crypto winter is a term used to describe the market conditions in the cryptocurrency industry. It is characterized by a prolonged bear market where prices of digital assets plummet, and investors lose confidence in the industry’s future.

How often does crypto winter occur?

According to historical data, crypto winter usually occurs every three to five years. However, the most recent crypto winter began in late 2017 and is still ongoing. This is the most prolonged and most severe crypto winter on record.

How is crypto winter different from a bear market?

A bear market is typically defined as a drop in asset prices of at least 20%. While the crypto winter we are experiencing has seen some digital assets lose up to 80% or more of their value, it does not technically qualify as a bear market.

Does crypto winter affect all cryptocurrencies?

Not all cryptocurrencies are affected by the crypto winter, only those highly dependent on the success of the Bitcoin network. The fall in prices of altcoins is mainly due to the sell-off of Bitcoin, as investors cash out their profits from the 2017 bull run.

How to survive in the crypto market during this period?

If you are new to the crypto world, you first need to know that the market is highly volatile. Prices can go up or down by a large margin in a brief period. This is why it is essential to do your research before investing in any cryptocurrency.

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