How To Thrive in a Crypto Winter
- dropped below $ 45,000 for the first time since last August.
- DCA investment technique to reduce the impact of market volatility.
- DCA strategy earns high-interest income from idle digital assets.
By Raymond Hsu, Cabital’s Co-Founder and Chief Executive Officer
One of the reasons that crypto markets can be so volatile is because of FOMO and FUD. Investors should take advantage of these low prices, stick to a DCA strategy, and earn high-interest income from your idle digital assets.
It has been a tough start to the year for everyone holding crypto.
The Federal Reserve’s indirect hints of future rate hikes in addition to reports claiming that India and Russia would completely ban cryptocurrency trading and mining threw the emerging digital asset industry into a spiral.
Bitcoin dropped below $ 45,000 for the first time since last August and Ether lost over half its value from it’s all-time high at one point earlier in the year. With all coins considered, $ 500 billion left the cryptocurrency space in January according to CoinGecko data.
Sadly, many people feel like they were burned this year since 2021 will go down as the year of mass adoption and the beginning of institutional interest in crypto. But who can you blame? There are many actors and events that impact the crypto market, from interest rates to upcoming regulations, from new innovations and institutional adoption.
There isn’t one single person that can take the blame, so what I prefer to do is ask myself how to play this market dip? The age-old question stands: Do you hold on for dear life (HOLD), buy the dip, or flee in panic and lick your wounds? Here’s what I believe are some of the best strategies to thrive in a bear crypto market, which we call in the industry, a crypto winter.
Dollar-cost averaging (DCA)
DCA is an investment technique that aims to reduce the impact of market volatility by investing a set amount on a regular schedule (for example, purchasing $ 100 of bitcoin every two weeks). And it’s not unique to digital assets – traditional investors in equity and debt markets have been using DCA for decades to endure stock market volatility.
The whole point is to avoid making the mistake of making one lump-sum investment that is poorly timed regarding asset pricing. When you buy the highs and the lows, you will acquire an overall good price over time.
On various cryptocurrency exchanges and crypto wealth management platforms, you can take advantage of the DCA investment strategy with an automatic recurring buy. All you must do is choose the digital asset you want to buy, specify an amount, and choose to purchase it daily, weekly, or monthly.
You may be worried that the market will continue to go down, and it just might. But if you use the DCA strategy, you will capture the very lows, making your average DCA lower than if you just bought towards the top in a one time buy.
A case study by a major American cryptocurrency exchange can show us the power of the DCA investment strategy over a long-term time period. Let’s look at from October 2018 to May 2019. During those seven months, Litecoin experienced volatility, moving between $ 22.95 and $ 114.86 per coin.
Then imagine if you decided to set up a DCA recurring buy for $ 200 of Litecoin every month starting on October 15, 2018. By May 15, 2019, you would have bought $ 1,600 worth of Litecoin. If you sold all your Litecoin at that point, you would get $ 3,208.02, a profit of $ 1,608.02.
On the other hand, if you bought the same amount of Litecoin ($ 1,600 on a single day, October 15, 2018, and sold all of it on May 15, 2019, you would only earn $ 2,721.17, almost $ 500 less profit if you used the DCA strategy. The difference is clear, DCA works.
Generate high-yield passive income with stable coins
With inflation running rampant with the US hitting a 39-year high of 7%, depositing stable coins into a cryptocurrency savings platform to earn up to around 12% a year is a great way to hedge your risk against inflation along with building your crypto portfolio. while prices are cheap.
Stable coins were created to eliminate price volatility. A stable coin, if created properly, are effective units to store value and a great medium of exchange.
Stable coins are in high demand, as they are typically backed by real world assets, such as US dollars, treasury notes and even real estate. With that in mind, you can use stable coins, such as USDT and USDC to deposit into cryptocurrency savings platforms and generate high-yield passive income.
Once we enter the next bull market, you will be very pleased that you staked your stable coins, as you will see your portfolio balloon to new highs.
Do not be tricked into FOMO and FUD
Staying on top of the latest news and trends in the cryptocurrency space is important, as it is changing very quickly, but too much information cannot always be a great thing. This is true in bear markets, where it is easy to let your instincts take over and buy dips that one can not afford. Buying the dip can be fun, but those credit card fees add up. And let’s be honest, nobody knows when the dip will end.
The feeling “fear of missing out” (FOMO) and “fear, uncertainty and doubt” (FUD) are common terms in the crypto space, but those emotions need to stay in check. Powerful emotions such as FOMO and FUD can have strong influences on how you invest and throw you off track from achieving your financial long-term goals.
Remember: Nobody can predict the future with 100% accuracy. And nobody’s advice is perfect. Nobody knows everything. So, it’s best that you do your own research before you come to an investment decision and always stay calm, cool, and collected.
One of the reasons that crypto markets can be so volatile is because of FOMO and FUD. The good news is that institutional investors, who have long-term strategies, over time will help keep bottom lines propped up in bitcoin and ether, but that is just starting. So, for now, retail investors must learn to weather the storm and stick to their strategies that are tested and work.
Do not let this bear market overwhelm you. They come and they go. Instead, take advantage of these low prices, stick to your DCA strategy, and earn high-interest income from your idle digital assets.
Most importantly, stay patient and positive – after winter always comes spring.
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