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Crypto Coach: How to stay warm during a crypto winter

Despite record-breaking temperatures throughout the US, UK, and Europe this summer, the crypto world is in the midst of a deep freeze. The Crypto Coach provides suggestions on how you and your coins can stay warm this (crypto) winter.
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Written by Steven Warren on
Reviewed by Marc Wojno
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Getty Images / wenjin chen

Summer comes but once a year (and boy are we feeling it in 2022!). So does winter. But in the crypto world, you never know when -- or for how long -- a dreaded "crypto winter" will last, but when it does arrive, it can wreak havoc on your digital portfolio.

We currently are knee deep in the snows of a crypto winter. Panic selling is running amok, bringing freezing temperatures to a once heated crypto marketplace. Rug pulls of NFTs seemingly are a daily occurrence, and downward fever lines are colored red across the board. In this crypto winter, Bitcoin, for example, plunged from an all-time high of $69,044 a coin in November down to a dismal $17,745 this June; Terra -- now Terra Classic -- was riding high in May but shot down in June to zero; Voyager went bankrupt; and the mega hedge fund Three Arrows Capital (or 3AC) went MIA. It doesn't get much colder than this, but then again, it's not over. With a nod to Game of Thrones: Winter is not coming, it's here!

But if you can adjust your mindset for a moment, consider this: A crypto winter -- or a crypto bear market -- is a great opportunity to "average down," or get into a coin for the first time. Of course, you need to manage your risk properly but carpe diem during these cold days in crypto.

Here are some of my suggestions on how to stay warm during a crypto winter. (Full disclosure: I am not a professional financial adviser. The following suggestions are based on my personal observations and don't constitute financial or investing advice. Consult a financial adviser before making any investments. To read ZDNet's full disclaimer, scroll to the bottom of this story.)

  1. Incorporate dollar-cost averaging (DCA). Just as in traditional investing, this strategy of investing equal amounts over regular intervals, regardless of price, also applies in the world of crypto, and it's helpful in reducing the pains of volatility on the investment of your coins. Let's say, for example, you purchased five Ethereum (ETH) coins at $3,500 each in January, but this summer it's trading at $1,300. Your initial purchase was $17,000. That investment is now worth $6,500. You have lost $10,500. It's not a realized loss, yet, but you are down big. Now, let's say you purchase an additional three ETH at $3,900. You now have eight ETH worth $10,400. Because you're averaging down, your cost to break even goes down. By investing in small increments over time instead of all at once, DCA helps you take advantage of market volatility. In the example above, it would have been better to break up the original five ETH purchase into smaller incremental purchases.
  2. Buy-and-hold indefinitely (or hold on for dear life -- HODL). Take a break from crypto and wait until the prices rebound. HODL is holding through the ups and downs of the crypto cycles and selling for higher returns over the years. A person who can HODL through a 70% loss is a "boss." It takes a certain level of commitment to do this. Most HODLers don't care about fluctuations; they are investing in the long term to maximize profit, just like investing in stocks.
  3. Trading (all day and all night). In a bear market, shorting cryptocurrency is a way to earn money. Instead of trading in the hopes a coin will go up, you trade on the presumption that the coin is going down and capitalize on the gains that way. From my experience, shorting is a more common -- and accepted -- practice in the crypto world than it is in the stock market. Many traders trade the long and the short, but to do so successfully you must have a solid understanding of how cryptocurrencies are traded as well as know how to "read" performance charts and price actions. If you enjoy staring at charts and being glued to your computer screen all day -- and at night -- this might be right for you.
  4.  Watch the show from the sidelines. Do nothing. Wait, wait, and wait some more for coins to bottom out and then pounce and buy. The bag holders who paid more for their coins will loathe you, but you will be able to make huge returns when the crypto bull market returns.
  5. Put your coins in cold storage. In a crypto winter, move your funds to cold storage. Don't trust your funds on a centralized exchange (CEX). You can use decentralized exchanges to lend out your coins via smart contracts. If you must use a CEX, get in and get out as quickly as you can. 
  6. Consider stablecoins. Inflation (currently 9.1%) continues to skyrocket and investor returns aren't keeping up. So, using cryptocurrency to protect your purchasing power via stablecoins is a hedge against inflation. You can generate higher yields by depositing your stablecoins into smart contracts or lending them out. The most popular stablecoins are backed by the US dollar and they maintain a 1:1 value against the dollar. The most popular by far is Tether (USDT). It's the most liquid of stablecoins and has a market capitalization of $66 billion. It's the third-largest coin by market cap on coingecko.com. USDC and USDT are the most secure stablecoins to leverage (more on that in a future post).
  7. Read, Read, Read. During a crypto winter, take the time to hone your crypto skills by reading more on how to trade and read charts or simply learn about decentralized finance (DeFi) and stablecoins. I love learning about different blockchain technologies or trading on testnet platforms. If you aren't familiar with testnet, some platforms let you trade with fake money to learn how to use their platform. It's similar to stock trading in simulation mode. 

As for keeping warm during this crypto winter, here are some key takeaways to be aware of:

  • Never -- and I mean never -- trade 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 at a 70% loss. You'll regret it in a bull market. HODL.
  • Finally, winter always ends, and warmer seasons return.

Stay warm, friends.

The information presented by the Crypto Coach and ZDNet is not intended to be individual investment advice and is not tailored to your personal financial situation. It does not constitute investment, legal, accounting, or tax advice, nor a recommendation to buy, sell, or hold any particular investment. We encourage you to discuss investment options with your financial adviser prior to making any investments.

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