While the crypto market was profitable in 2020 and 2021, things were slightly different this year, as the market experienced all sorts of challenges. This period of trouble is known as the crypto winter, and since there are no guarantees regarding how long it could last, it’s better to be prepared for unforeseen events. If you’re considering buying crypto in 2023, it’s imperative to understand the risks involved and develop an effective investment plan. The rules are still the same as always: don’t invest money you can’t afford to lose, and do your research to stay up-to-date with the latest changes in the market.
The current struggles of the economy, such as political instability, highs in inflation and significant borrowing costs affect the crypto market, so it’s hard to predict how fast it will recover. However, some are positive and believe that the market will eventually be fruitful again as soon as the crypto winter ends.
Understanding the crypto winter
The crypto winter refers to a downturn in the prices of crypto assets, impacting even popular digital coins like BTC and ETH. Thus, those who want to buy ethereum online should be aware that the eth price is also affected by what’s happening, just like all the other coins. This isn’t the first time the market experiences this challenge – crypto winters occurred in the past, too, some of them lasting longer than others.
Even if no one can tell for sure when the crypto winter will end this time, the market may flourish again, considering the similarities with prior ones. This is a natural cycle in the crypto space, as there are periods of large runs and large falls. Experts predict that the next BTC halving could be a significant upwards push. While the market is currently struggling, that doesn’t mean all hope is lost, as crypto could come back stronger.
What should investors do during the crypto winter?
While there have always been crypto skeptics who don’t see any value in cryptocurrencies, enthusiastic investors expect the market to evolve into a significant part of the economy. Whether you’ve been investing in crypto for a while or want to get started now, it’s time to do your homework. The collapse of FTX is a reminder that before investing, you should be aware of the risks in the crypto space and ensure you understand user agreements and the terms of service when using an exchange. Suppose you don’t use a crypto wallet yet; you should consider looking for one now. Cold wallets are many investors’ go-to because they are more secure, storing your crypto offline, thus protecting it from unauthorized access and digital threats. On the contrary, hot wallets can only be accessed via an Internet connection, making your tokens more susceptible to cyber-attacks.
According to experts, it’s best to dedicate around 5% of your investment portfolio to cryptocurrencies. Start by getting acquainted with the multiple ecosystems, blockchain, and projects like metaverse, NFTs and web3. This is probably the best time to educate yourself on crypto and determine whether you’re comfortable investing in this asset and how much you can put into crypto based on your current financial situation.
Surviving a crypto winter can be tricky, especially for those who’ve only recently started investing in digital currencies. However, there are some things you can do to navigate these challenging times:
⦁ Evaluate crypto projects before making a decision. Tokens are tied to different entities, some of which can be a scam, so instead of jumping straight into a particular project, evaluate it first. After all, crypto has been called the Wild West, and it’s best to approach it cautiously.
⦁ Don’t follow the herd. Reddit is fun, but if you think you can rely on it for advice regarding your investments, you’re wrong. You shouldn’t trust everyone on the Internet, as online discussion boards can’t provide accurate information and people’s opinions are just that – opinions. Instead, you should use trustworthy resources like reputable crypto platforms. Stay rational when investing and focus on your own goals.
⦁ Make adjustments to your portfolio. The sunk cost theory in poker says that folding a hand when you think you’ll lose is challenging if you’ve made a significant bet. Initially, you may believe it makes sense to bet more so you don’t lose the money you already put in; however, chasing your sunk costs isn’t a good idea, as it can lead to even more losses. You shouldn’t take the HOLD approach if you find it too risky. It’s okay to make any adjustments to your portfolio whenever necessary.
⦁ Only invest as much as you afford to lose. Crypto is a volatile and risky asset, and no one can guarantee that you’ll gain significant returns from it. This means you should take an honest look at your finances before investing. You may not be financially prepared for the market, and that’s okay – smart investors don’t put in the money they can’t afford to lose, and that’s what you should do, too. The last thing you want is to invest your emergency fund in crypto and be left with no money when there’s an unforeseen event in your life.
⦁ Buy the dip. If you’re optimistic about the crypto downturn and believe it will only be temporary, you may want to consider buying at lower prices. That way, as the crypto market recovers, the value of your portfolio will also increase.
You shouldn’t allow past losses to impact your future investment decisions. Instead, consider the value of a specific project or currency when making a decision. Suppose you have doubts regarding its worth; it’s probably best to skip it. You have a better chance to navigate the crypto space successfully if you limit your investments to the assets you understand. Additionally, you should never hesitate to seek guidance from an investment professional, as they have the best intentions and will help you get through tough times and make better investment decisions.
The bottom line
2022 has been a difficult time for the crypto market; however, this doesn’t mean you should lose hope. However, if you do decide to buy crypto in 2023, make sure to keep your expectations low at the beginning and follow basic crypto investing rules.