This crypto winter is rough, but not all investors fear it

Last Updated on November 15, 2022 by Andrew

The crypto market is going through one of the most brutal crypto winters of all time. This article provides information about the phenomena to help investors understand what to expect from and how to navigate the sector until the skies clear. 

The last couple of months have been challenging for crypto investors because digital tokens have suffered a decline that sent any crypto enthusiast running for the exit. If the global cryptocurrency market was worth over $3 trillion at the end of 2021, now it’s worth under $1 trillion, and major currencies like Ethereum and Bitcoin are trading at lower values than in previous years. 

Even if this period tested crypto enthusiasts, seasoned investors have become used to extreme volatility and are optimistic about the conclusion of the bear market. Crypto has experienced booms and drops every couple of years as the hype built and new technology revolutionised the market. The downturns have become popular as bear markets and are characterised by significant interest, value, and activity declines. While no crypto investor welcomes a crypto market, some recognise the opportunities they provide and take advantage of the market cycle. 

How do seasoned crypto investors deal with bear markets?

Many investors build wealth during crypto winters

Bear markets are rough, but it’s paramount to keep in mind that seasoned traders gain revenue during these periods. Crypto winters wipe the projects that lack fundamentals and try to scam investors out of the market. At the same time, they focus on business and product development rather than zooming in on marketing, action or price. A quick review of the market shows that the leading projects of the moment are Uniswap, Cosmos, and Solana, which emerged in the industry during the bear phase. Ethereum was also created during the Bitcoin bear market and its value peaked at the end of the phase in January 2018. Experts think Ethereum price USD will bounce back to its historically high value once the crypto winter ends. 

Sticking around is essential during challenging industry times because legitimate digital assets will have no issue surviving the crypto winter. Another reason seasoned investors thrive during the bear market is that several legitimate projects are mislabelled as Ponzi schemes when they are greater fool assets. Investors gain revenue by selling overvalued crypto assets to people lacking industry knowledge for high prices. The most successful crypto investors have endured the last bear market and have been patient over the last few months because they’re aware that sticking around is a decisive factor for success in the industry. 

Investors re-evaluate their strategies

No one likes to lose money, but dealing with financial challenges can be a great teacher for everyone. The bear market is the perfect opportunity for people to overview their investment strategies and reflect on their previous mistakes. Those present on the market during the Bitcoin winter can analyse their mistakes then and ensure they don’t sing the same song. 

When an asset plunges and an investor experiences a portfolio drawdown, the market invalidates their investment strategy and needs to rebuild their portfolio and develop a new approach. 

However, only because an investment turned unsuccessful, doesn’t mean the market invalidated the investor’s strategy. It requires research and analysis to understand what a drop in an asset’s price means. Several factors could trigger an asset’s price decline.

Investors are patient

Seasoned investors know that patience is crucial during bear markets because the phase can last longer than predicted, which is often mentally challenging for beginners. Specialists state that the present bear market syncs with the worst macroeconomic backdrop since the Great Financial Crisis. Crypto specialists state that it’s possible for digital tokens to trade sideways or register price drops for two or three years, and investors must practice patience, especially if they hold a significant portion of their funds in digital assets. 

Overall, crypto winters are less forgiving than crypto summers, and sometimes it’s best not to make any investment to protect your wealth. During some points, most cryptocurrencies are 99% down from their all-time highs, and it’s not profitable to make any trade. During bear markets, it’s smart to create life-changing portfolios, research projects, and identify the digital tokens that are most likely to outperform the market during bull markets. 

Why is the market going through a bear phase?

Crypto winter or bear market are terms used to describe poor-performing markets. A fearful market accompanies this period because investors are searching for something to blame their poor-performing portfolios on. Crypto winters are triggered by several factors and events that come together at a particular time. 

Let’s have a look at the main factors that triggered the bear phase.

The USA puts a stop to its quantitative easing

Quantitative easing aims to increase market activity by cutting down interest rates and is adopted when no other strategies are available or applicable. The US Federal Reserve ended quantitative easing, and the interests bounced back to their original values. Therefore, there is no cash supply to prop up crypto investments, and investors find it more challenging to borrow money from banks. 

Market corrections and uncertainty

The crypto market is constantly adjusting to the industry’s needs. Usually, a new correction comes after an all-time high price, like the ones we have witnessed in the last years when Ethereum and Bitcoin hit their maximum values. When the market applies corrections, some investors prefer to diversify their portfolios with other assets to lower the risk exposure. 

Uncertainty can also trigger crypto winters because people fear investing funds when they hear stories of cryptocurrencies plummeting. Fear often pushes investors to back off and wait. 

Bitcoin halving

Another important event is Bitcoin halving which allows developers to minimise the token demand by restricting supply and cutting down to half the rewards miners get. The next halving is scheduled for 2024, and in the following months, its price will most likely fluctuate drastically because the market will have to correct itself.