Crypto Winter Is Rough. Here Are Five Essential Survival Tips

Crypto Winter Is Rough. Here Are Five Essential Survival Tips

Crypto Winter Is Rough. Here Are Five Essential Survival Tips

Key Takeaways

  • Bear markets are in which the cash is made, so sticking round and staying engaged is essential for achievement in crypto.
  • Second-order questioning and anticipated cost are instrumental intellectual fashions to apply while getting ready for the subsequent leg up.
  • Bear markets ought to final years, and crypto asset costs ought to move decrease than everyone’s expectations, so staying affected person is critical for surviving the crypto winter.

It’s been a brutal 12 months for crypto investors. After a prolonged marketplace rally noticed the worldwide cryptocurrency marketplace capitalization pinnacle $three trillion in past due 2021, Bitcoin and different virtual property had been battered via way of means of macroeconomic turmoil, struggling a decline that’s despatched a lot of ultimate 12 months’s new crypto adopters going for walks for the exit. Today the gap is really well worth simply under $1 trillion, with Bitcoin and Ethereum each buying and selling over 70% down from their all-time highs.

But whilst this 12 month has examined even the maximum ardent crypto believers, early adopters have end up used to intense volatility in each direction. Crypto has traditionally boomed more or less each 4 years as new entrants find out the era and hype builds, however it’s usually suffered from extreme crashes after the marketplace euphoria hits a peak. These downturns have end up recognized as “crypto winter” phases, characterised via way of means of huge declines in marketplace hobby and interest, assignment washouts, and intense selloffs. Although few crypto enthusiasts welcome endure markets, they could offer a great possibility to recover and take inventory beforehand of the subsequent marketplace cycle. In this feature, we proportion our pinnacle 5 recommendations for surviving the continuing crypto winter. Those who observe them ought to be well-located to thrive as soon as crypto unearths momentum.

Stick Around Through Crypto Winter

 While the crypto winter can be challenging, it’s important to remember that bear markets are actually where many people are accumulating true wealth. This is especially true for cryptocurrencies for two reasons. Obvious scam, fade during bear markets.

At the same time, the space is shifting its focus from price promotions, marketing and hype to product and business development. Some of today’s leading crypto projects like Solana, Cosmos and Uniswap were built and launched during bear markets.

Ethereum, the second largest cryptocurrency in the world, was launched in 2015 amid the Bitcoin bear market and traded below $10 until the 2017 bull cycle. Ethereum peaked at $1430 at the end of this cycle in January 2018, leading to production returns for early investors. This leads to the second reason why staying put is key to surviving the crypto winter and thriving in the next cycle. Many legitimate cryptocurrencies are mislabeled as Ponzi schemes when they are “dumber” assets.

In finance, the theory of the biggest sucker’s states that investors can sometimes make money off “overvalued” assets by later selling them to someone (the “sucker”) at a higher price. Amplified by the herd mentality, this psychological phenomenon leads to economic bubbles followed by massive corrections. And while all markets are affected, crypto assets are particularly vulnerable, further underscoring the importance of being early. And being early on crypto means staying engaged, learning and analyzing the market when the industry is in a bear cycle.

Some of the most successful investors in the 2017 bull market were those who survived the 2014-2016 bear market. Likewise, many of those who made fortunes in 2021 weathered the grueling recession of 2018-2019, which is the key to success when the market shifts.

Rethink Your Thesis

Losing money is never fun, but it can be a great teacher. Crypto winter is an excellent opportunity for investors to reconsider their investment thesis, reflect on the mistakes they made in the last cycle and prepare for the next leg.

An asset or an entire asset class falling 70% from its all-time highs can mean different things. For example, a significant drawdown in an investor’s portfolio could mean that the market has betrayed their investment thesis, which means they need to reconsider their approach and rebuild their portfolio to better reflect the new reality. If this is the case, selling at a loss and making other investments may be justified.

However, a significant drawdown does not necessarily mean that an investor’s investment thesis is invalid. For example, if a token’s fundamentals are improving, investors who liked it at $1,000 should like it even more at $200.

A fall in an asset’s price does not necessarily mean that it has become a weaker investment. There are numerous reasons why an asset might fall temporarily despite strengthening fundamentals, many of them that are exogenous or unrelated. An investor’s job is to locate these market inefficiencies, buy temporarily undervalued assets, and then sell them at a higher price when markets have caught up.

Employ Second-Order Thinking

Each cryptocurrency bull cycle is triggered by multiple catalysts and cloaked in different narratives. The 2017 bull run was marked by initial coin offerings on Ethereum and the “Blockchain, not Bitcoin” narrative, with startups raising millions by short selling mostly worthless tokens. it promises to tokenize and decentralize everything.

The most recent bull run began with Bitcoin’s 2020 halving, which coincided with unprecedented post-pandemic money printing that shed light on its value proposition as a spike-inflation hedge. The cycle continued with the rise of decentralized food-themed applications on Ethereum in a period that became known as “DeFi Summer” before a widespread NFT boom ushered in “NFT Summer” a year later.

The 2021 cycle ended with the rapid rise and fall of the alternative Layer 1 networks Terra, Solana, and Avalanche. Those who successfully predicted the prevailing narratives made one kill, while those who were late and couldn’t tell where the puck was going had less. Happiness. Predicting the dominant narratives of the next cycle requires second-order thinking, or deep reflection that considers the long-term consequences of many causally relevant related events. In this sense, the investing game is identical to Keynes’ infamous beauty pageant, where investors have to guess what other investors will think rather than what they think themselves.

Since cryptocurrencies are subject to the big fool phenomenon, successful investing isn’t necessarily about finding projects or assets that outperform the market, it’s about anticipating the expectations of others. Where first-order thinkers are currently trying to figure out whether the next layer 1 network, Aptos, will outperform Solana, second-order thinkers are trying to figure out which blockchain the most unassuming investors will think will be better when the next cycle begins.

Think in Terms of Expected Value

Another helpful mindset to employ when trying to survive bear markets and crypto investing is to practice making only positive expected value investments. In this context, the expected value (EV) is the sum of all possible values ​​for a random variable, each value is multiplied by its probability of occurring. Suppose an investor is considering buying $1,000 worth of token X. The token in question is a very volatile small-cap cryptocurrency that has a 95% possibility of going to zero
and a 5% chance of going to $25,000. The formula to calculate the expected value of this investment is:

EV = (-$1,000 x 0.95) + ($25,000 x 0.05) = $300

This means that the expected value of the bet is positive and that if the investor keeps $1,000 in investments with the same odds invested indefinitely, he would, on average, earn $300 per investment. In simpler terms, if you make 100 investments ($100,000), lose all your money on 95 of them (-$95,000), but make 2,400% on five of them (5 x $25,000 = $125,000), you would end up with a profit of $30,000 ($125,000 – $95,000).

While considering the expected value makes it easier to assess whether a particular investment is worthwhile, even a small change in the assumed variable can often turn a positive EV trade negative. The correct assessment of the probabilities of the occurrence of certain events is therefore crucial for investment success.

Additionally, given that there are thousands of cryptocurrencies on the market and investors have a limited amount of money, it is imperative to compare expected values ​​of different investment options and only invest in a diversified group of those with the highest expected value. For example, let’s say an investor is weighing whether to invest $1,000 in Bitcoin or Ethereum at their current market prices and believes they have an equal 50% chance of going to zero or their previous all-time highs.

In this case, you can calculate the expected value of both investments to see which is stronger. Ethereum has a slightly higher expected value in this case, as it would need to appreciate more than Bitcoin to reach its previous all-time high price.

Be Patient

Patience is essential in the crypto winter. The winter period can last longer than expected, which can be a mental challenge for even the staunchest of believers. The current bear market is occurring during the worst macroeconomic scenarios since the Great Financial Crisis. It’s entirely possible for cryptocurrencies to continue falling or trading sideways for two to three years.

Being patient can be relatively easy for marginalized investors, but for those with a significant portion of their.Net worth held in cryptocurrencies can be very challenging. Also, bear markets are much less forgiving than bull markets, which means that sometimes not investing can be the best decision. This is especially true given that most cryptocurrencies on the market are more than 99% off their all-time highs. In bear markets, many investors build life-changing portfolios, but it takes patience, research, and forethought to take the right steps and select the cryptocurrencies that will outperform the market in the next phase.

Final Thoughts 

As this year has shown, the cryptocurrency market is not for the faint of heart. While bullish volatility can help cryptocurrencies soar to staggering levels during bull runs, they can plummet just as badly during prolonged downturns. Long-term thinking and learning to embrace recessions have historically been some of the biggest winners in the industry.

Assuming cryptocurrencies don’t die, following the tips listed in this feature should help investors prepare for the upcoming. We’re stuck in crypto winter, but the fundamentals haven’t changed. If you think about the big picture, you will get through the crypto winter much easier.

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