Crypto Coach: How do you stay warm during the crypto winter?

Summer only comes once a year. Winter too. But in the world of cryptocurrencies, you never know when – or how long – the dreaded “crypto winter” will last. But when it happens, it can wreak havoc on your digital wallet.

We are currently in knee-deep crypto winter snow. Panic sales are unleashed, bringing freezing temperatures in a crypto market that, let’s face it, has been pretty heated until now. The same goes for NFTs. During this crypto winter, for example, bitcoin fell from a record high of $58,300 per coin in November to a dismal $20,400 in June.

Terra – now Terra Classic – rose in May but fell to zero in June. Voyager went bankrupt. And the mega hedge fund Three Arrows Capital (or 3AC) is gone. Yes it is cold. And it’s not over.

But think about this: a crypto winter – or even just a bear market – is a great opportunity to enter the market for the first time. Provided, of course, that you manage your risk well.

Here are some of my suggestions for staying warm during a crypto winter. But : I am not a professional financial advisor. The following suggestions are based on my personal observations and do not constitute financial or investment advice. Consult a financial advisor before making an investment.

1. Use the dollar cost method (DCA – dollar cost averaging)

Similar to traditional investing, this strategy involves investing equal amounts of money at regular intervals, regardless of price. This also applies to the world of cryptocurrencies and helps reduce the effects of volatility on your coin investment. Let’s say you bought five Ethereum (ETH) coins in January for $3,500 each, but they’re trading at $1,300 this summer. Your first purchase was €17,000. This investment is now worth €6,500. You have lost € 11,000. It is not yet a realized loss, but you have lost a lot. Now let’s say you buy three more ETH for $3,900. You now have eight ETH worth $10,400. As you average, your cost of even breaking down decreases. By investing in small increments over time rather than all at once, DCA helps you take advantage of market volatility. In the example above, it would have been better to split the initial purchase of five ETH into several small incremental purchases.

2. Buy and hold indefinitely (or hold for life – HODL)

Buy and Hold Forever (or Hold For Life – HODL): Pause and wait for prices to rise. HODL is all about sustaining the ups and downs of crypto cycles and selling for higher returns over the years. Yes, and a person who can HODL a 70% loss is a “boss”. Sure, it takes a certain amount of dedication to do this. Most HODLers don’t care about swings; they invest for the long term to maximize profits.

3. Sell and Buy (Day or Night)

In a bear market, short selling in cryptocurrencies is a way to make money. Rather than trading with the expectation that a currency will rise, you trade with the expectation that the currency will fall and thus take advantage of the profits. In my experience, short selling is a more common – and accepted – practice in the cryptocurrency world than in the stock market. Many traders trade in long and short positions, but to be successful, you must have an understanding of how cryptocurrencies are traded and be able to “read” performance charts and price action. If you enjoy staring at charts and being glued to your computer screen all day and night, this might be the activity for you.

4. Watch the show from behind the scenes

Do nothing. Wait, wait and wait for the coins to bottom out, then jump and buy. Those who paid more than you will hate you, but you can make huge profits when the cryptocurrency bull market returns.

5. Put your crypto in a cold store

Move your money to a cold room during a crypto winter. Do not entrust your money to a centralized exchange (CEX – centralized exchange). You can use decentralized exchanges to lend your coins through smart contracts. If you must use a CEX, get in and out as soon as possible.

6. Use stable coins

Inflation (currently 5.8% in France) continues to rise and investor returns are not following. Thus, using cryptocurrencies to protect your purchasing power through stablecoins is a hedge against inflation. You can generate higher returns by depositing or lending your stablecoins in smart contracts. The most popular stablecoins are backed by the US dollar and they maintain a 1:1 value against the dollar. By far the most popular is Tether (USDT). It is the most liquid of the stablecoins and its market cap is $66 billion. It is the third largest cryptocurrency by market cap on USDC and USDT are the safest stablecoins to use.

7. Read, read and read again

During a crypto winter, take some time to hone your crypto skills by learning more about trading and reading charts or simply learning about decentralized finance (DeFi) and stablecoins. I like to learn about different blockchain technologies or trade on testnet platforms. If you are not familiar with testnet, some platforms allow you to trade with fake money to learn how to use their platform. It is similar to stock trading in simulation mode.

And to keep warm during this crypto winter, here are some essentials to know:

  • Never trade – and I mean never – more than you can afford to lose. Crypto can be a great buying opportunity, but you can also lose your shirt. I recommend investing between 1% and 5% of your total portfolio.
  • Dollar-Cost Averaging is a must or you will lose your sanity in a bear market.
  • Don’t panic sell with a 70% loss. You will regret it in a bull market. HODL.

Finally, winter always ends and warmer seasons return. Keep warm, my friends.

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