Crypto winters are akin to bear markets in financial markets. Bears hibernate in winter. A bull market is fast, whereas a bear market is sluggish. In conventional capital markets, a bear market occurs when stock prices are 20% lower than peak levels.
Unlike conventional financial markets, cryptocurrency has no clear indicator for a crypto winter. No regulatory body declares a crypto winter. The overall trend is ongoing decreases for exchanges and investors. Crypto winters usually include many coins and three months of decrease.
A crypto winter occurs when cryptocurrency assets and trade volume fall. There are various reasons cryptocurrencies fall, causing a crypto winter.
Investor confidence in a sector’s outlook and prospects affect price and the likelihood for a collapse, just as conventional bear markets. Negative value feeling, liquidity, and security worries might lower confidence. Companies closing or declaring bankruptcy might also cause crypto winter events.
In 2022’s crypto winter, a succession of terrible occurrences caused financial losses that shattered investor trust in cryptocurrencies. TerraUSD and Luna fell in May 2022, wiping off billions in investor wealth. That meltdown caused a confidence crisis in cryptocurrency markets, lowering market valuations.
The November 2022 bankruptcy of crypto exchange FTX wiped away billions in investor equity and further affected the market. FTX founder Sam Bankman-Fried has been accused of financial mismanagement and malfeasance.
FTX’s bankruptcy had a major influence on the cryptocurrency sector, including BlockFI’s insolvency owing to its exposure to FTX assets. Investor losses increased when BlockFi collapsed.
The FTX bankruptcy has raised concerns about additional cryptocurrency restrictions, which has lowered market confidence and prolonged the crypto cold.
Inflation and recession worries slowed macroeconomic activity during the 2022 crypto winter. The macro economy also affects bitcoin sentiment and confidence.
How To Survive
You must stay calm despite the internet’s crypto winter hype. You must realize that this moment is not the end. Although this winter lowers digital asset values, history shows that crypto usually recovers. Wait and don’t panic. Panic leads to bad investing judgments, which you don’t want.
When the market crashes for a long time, you should rethink your investments. Assess your investments in volatile assets such minor cryptocurrencies with little value. It will be hard to reduce hazards immediately. If you haven’t invested in such initiatives, avoid them since they won’t survive the crypto winter.
Asset safety is every trader’s main concern during such times. Investors prioritize safety while depositing cash in custodial crypto exchanges.
In the financial market, never risk more than you can afford to lose. Nothing is more appropriate than this remark today. Overinvesting leads to insomnia and illogical judgments.
Although prices may not keep plummeting, it’s best to psychologically ready for the next surprise. Some investors recommend dollar-cost averaging, buying smaller quantities often. It smooths volatility.
References
Team, L. (2022, December 27). How To Survive Crypto Winter. LCX. https://www.lcx.com/how-to-survive-crypto-winter/