If you’ve taken an interest in cryptocurrencies in recent years, you probably know they’re not having their best moment. In fact, they’re going through one of the roughest patches in their history, also known as the crypto winter. More versed investors are well aware that this is not the first, and it’s probably not going to be the last time the cryptocurrency industry is going to experience such a phase.
The crypto market is cyclical, so periods of price increases are naturally followed by periods of decline as time progresses. Prices begin to rise, reach a peak, start to fall and then bottom out. These are normal stages in all financial markets, and digital currencies make no expectation. What sets them apart from other assets is that their highs and lows tend to cause more turmoil and make the headlines since they’re less predictable, and we don’t have as much data on them. Still, people want to know how to buy Bitcoin and maintain a high interest in this new asset class that promises high returns to those who are able to make smart investment decisions.
However, every time someone mentions the words crypto winter is with utter dread. It’s rather strange how such an innocuous expression can send chills down someone’s spine. Some believe it to be a clear sign that the cryptocurrency industry is crumbling to the ground, never to recover again. What many fail to realize is that crypto winter, apart from being a normal stage in the development of digital currencies, can also be a blessing in disguise. So, there’s no need to shudder at the sound of it. On the contrary, now might be a good time to take a greater interest in the market and get into crypto investing.
What is crypto winter, really?
Part of the fear associated with crypto winters stems from people’s lack of knowledge on the topic. Just hearing these words without having a solid understanding of how the market functions can make newbie investors think that something truly dreadful is about to happen and that they need to stay away from digital currencies at all costs.
However, the reality is a lot less dramatic, so there’s no need to fear the crypto winter or make it seem like anything more than it actually is – a prolonged period of downturn in cryptocurrency prices characterized by low investor trust and little movement in the market. With prices falling across the board, most cryptocurrencies suffer brutal comedowns, and some even disappear entirely from the market. However, stronger and more established projects usually survive and bounce back after a while. There have been several crypto winters in the past, and the industry managed to survive them all.
Judging by this description, you may think that crypto winter is indeed not the best moment to start investing in cryptocurrencies. But there’s more than prices to take into account when investing in crypto. Since most coins have plummeted, there are very low barriers to entry for crypto investing right now. Also, if the market has indeed hit rock bottom, as many analysts believe, this means there’s only one way left to go, and that’s up. And with so little movement in the market, newcomers have greater chances to get the hang of it without being bombarded with all sorts of contradictory data and information that might confuse them.
Therefore, despite all the trouble and the negative sentiment it brings along, crypto winter might not be that bad after all. But if you want to enter the market in a time like this and make the most of it, there are a few guidelines you need to take into consideration.
Do your research
This should be the rule of thumb for all crypto investors, regardless of the phase of the market. However, it’s all the more important to do your due diligence when the industry is extremely sensitive to external factors and volatility is running high. Most experts advise that investors should opt to purchase Ethereum or Bitcoin as they are well-established cryptos that have been around for years and have stood the test of time. Nevertheless, if you want to explore your options and invest in a different crypto project, you need to conduct a thorough investigation before you put your money on the line.
Taking a passive approach and following the crowd are some of the biggest mistakes you can make as an investor. And still, many people forget how important it is to get thoroughly educated and use their better judgement before making an investment move. So, if there’s one step that you should never skip, that is research. Get acquainted with the technology behind digital currencies, inquire about the projects that you’re interested in and keep a skeptical attitude if you want to minimize risks as much as possible.
Diversify your portfolio
If you decide to take the plunge and invest in crypto despite the freezing temperatures that dominate the market, you better take some precautions to stay safe. Digital currencies have become a very popular investment instrument, given their high volatility and return potential. However, there’s always a chance that the volatility will work against you and cause you to lose money instead.
But you need to remember there are plenty of other assets out there that you can invest in, apart from crypto. Including other types of assets in your investment portfolio gives you the opportunity to increase your earnings and reduce the negative impact of market volatility. Keeping your crypto investments under 5% of your total portfolio is usually a good rule to follow. Also, investing in various crypto projects is a lot safer than putting your money on one single coin.
The fact that the cryptocurrency industry is in the midst of a crypto winter doesn’t mean it has closed shop. You should do your own research and judge for yourself if investing in digital currencies right now is a good idea or not.