The ongoing downturn in the cryptocurrency market is often referred to as a ‘crypto winter.’ Though its duration remains uncertain, there are strategies investors can employ to navigate through it successfully.
A crypto winter is a period of crises in the cryptocurrency market. The seasonal characteristic of this time frame means that it is frequent, but it is definitely possible to overcome some challenges that are connected with this period.
The period of value decrease in the cryptocurrency is usually called a winter period. For instance, in 2022 that was such a period of time where the value of virtual currencies dropped much. Several stablecoins failed and that characterized the winter season. Luna and TerraUSD dropped at the end of the spring and FTX failed in autumn. Together with a couple of security issues, the whole situation provoked obvious concerns from the market investors.
Explaining the Concept of Crypto Winter
Crypto winter is a term that has some resemblances with the bear market concept that is rather familiar to the financial sphere. The word ‘bear’ is used in this concept just because of their hibernation period so the term is visually characterized and more understandable. As an opposite term, the phrase bull market is accepted. Even if you have no clue of how does financial spear functions, with these terms it is obvious that the market could not be stable forever and there are usual ups and downs. A bear market as a concept is used when the value drops to 20 percent if counting from the peak price.
There are no specific metrics or measurements with the help of which one can calculate that a crypto winter has begun. There is no specific rate or percentage that you can take into consideration. As a rule, investors understand that this period has started because the declines are occurring for at least 3 months’ time-frame and that is happening with several cryptocurrencies.
Except for the above-discussed change in the value of virtual money, this winter period is also characterized as lessening trading in general. If major exchanges are making some steps within their companies such as layoffs, then it is surely a sign of crypto winter.
Analyzing the Decline in the Cryptocurrency Market in 2023
While we are still in 2023, it is hard to monitor something and guarantee that we are in the crypto winter period. Sure, cryptocurrencies can be up and down depending on the circumstances, but it is not still a winter period.
As of the recent statistical data, the market value of Bitcoin was 31,000 US dollars in July and already in August we all noticed a decline in 4,000. This was a rather nervous period for all the investors around the globe and everyone was confused about monitoring the market with the intention to predict the future situation.
Let’s not discuss the crypto market in general, but choose the most used virtual money such as Ethereum and Bitcoin. In September, these cryptocurrencies showed that the recovery process started. The trading value of Ethereum was at 1,602 US dollars and Bitcoin at 26,123 US dollars in September.
The highest market value for these currencies was in November 2021. Since then, Ethereum and Bitcoin are still recovering and will not react to their pick characteristics in 2023. For Bitcoin, the drop is still 50 percent if compared with 2021.
Investigating the Factors Behind a Crypto Winter
As we’ve already discussed this winter period on the crypto market happens because of a decline in the currency value and also trading lessening during a specific time. However, what is the actual reason for such a decline, and how is everything working in terms of virtual money problematic periods?
The crucial thing, in provoking this winter period, is investors’ activity. The investors’ decisions are tightly connected with the stability of the market, as well as some potential risks for them. So if there are some major concerns about security or liquidity, then investors will act in the most safe way for their profit and that will be definitely noticeable in the crypto value. The bankruptcy in the virtual financial sector also contributes a lot to the winter phase.
If taking into consideration the factors that were prior to the crypto winter in 2022, these are obvious things that provoke invertors’ unsafety in the market. In May of the previous year, Luna and TerraUSD crashed, and that made an overall investment into cryptocurrency not as profitable as it was a couple of weeks ago. Such concerns lowered the market value of the cryptocurrency.
After that May crisis, the next impactful event occurred in November. A huge influence on the crypto value was made due to the bankruptcy of FTX exchange. The following investors’ losses were connected with BlockFI bankruptcy. At that point, the situation in the crypto market had already reached its panicky atmosphere.
One more thing that extended the winter period, was the spread of the possibility of new regulations and more management/control of crypto. That provokes a lack of understanding of the future processes and lots of other concerns.
Estimating the Duration of Crypto Winter Periods
To be honest, no specific measurements will show how long this period can be. There are no adequate formulations of the beginning of the crypto winter as well as its ending. This is a vaguely determined time frame where there is an obvious drop in the currency value in combination with the above-discussed factors. According to the crypto data, it is just obvious whether currency is on the way up or recovering from the recent recession.
The first usage of “crypto winter” may be related to the period from Jan 2018 to Dec 2020. It was a huge period of almost 2 years which was generally considered a decrease in money value. So whether 2023 was also a collapse period, will be obvious find out in 2024.
Strategies for Thriving During a Crypto Winter
During the period of crypto winter, losses for the investors can be really huge. That’s why, there are a couple of great strategies which can help to survive this problematic period with minimum troubles. Here are several recommendations that you can start implementing right away:
- Calmness. Of course, it may sound like a strange recommendation, but how you can think strategically if you are in the middle of a panic attack because of the market value of cryptocurrency? You should concentrate on the fact that this winter won’t be forever, it is only a hard period after which there will be a growth of value. All the trading markets are recovering after severe crises and crypto will also come through these difficulties.
- Risk management. To minimize the risks, it is advisable to specify the sum that you can lose without any huge regrets. Once this budget is chosen, don’t invest more than you have decided and you won’t suffer from unbearable consequences. Also, you would rather choose more stable cryptocurrencies. Don’t choose variants with lower trading volumes.
- Short selling. Those investors, who prefer long strategic plans of purchasing for low prices and selling way higher, should change this approach during the crypto winter. You will definitely lose finances when investing in low prices.
- DCA. A really popular variant during the crypto winter is to continue purchasing crypto, to minimize the average cost of purchase. By doing this, Investors will have more potential to recover from this crisis quicker.
Crypto winter is an inseparable part of further prosperity and potential growth as an investor. Of course, it is not the best time for huge investing and big decisions, but by continuing your crypto journey you will have more chances of growth in the future. There are only a couple of strategies you should remember about DCA, short selling, and risk management. By following them, you will definitely win those investors who are just waiting for some market changes.