What should crypto traders do to avoid hysterical behavior and survive the potential crypto winter of 2022? Answers from Viktor Kochetovchief executive officer of Kirrex.
Every time the crypto market enters a bear or bull phase, pundits go into “oracle mode” and start making outlandish predictions.
For example, between October and November 2021, when the crypto market was booming and Bitcoin hovered between $60,000 and $65,000, these experts predicted price action of $100,000. (or even much more) for 2022. A few months later, the bear market eclipsed those forecasts. With the current price of Bitcoin hovering between $20,000 and $25,000, analysts are expecting the worst, with some predicting a drop to $10,000 or even $5,000.
These fluctuations in actual and forecast prices signal only one thing: the immaturity of the crypto market. Being a relatively young financial sector, the crypto asset market goes into panic mode at the first sign of falling prices. Likewise, a slight increase in the latter is enough to trigger huge demand that drives up prices. Here’s how to handle this situation.
Crypto winter: think and invest long-term
Before you get into crypto trading, the first thing to remember is that cryptocurrencies are currencies, not financial instruments like stocks or bonds. Indeed, crypto assets fall under the category of the foreign exchange market (Forex). This type of trading involves additional risks that arise from multiple factors affecting exchange rates. These factors range from the economies of currency-issuing countries to commodity prices, the state of international financial markets, and more.
Cryptocurrencies are also more complex than fiat currencies because they are not issued by a single central entity. In fact, the decentralized nature of the crypto market makes it more unpredictable. This does not mean that crypto trading is only suitable for the most experienced traders. However, it is important to consider the risks associated with this type of investment.
The most conservative approach that limits losses in crypto trading is to choose a long-term strategy. Specifically, it consists of allocating a small portion of your portfolio to cryptocurrencies and storing them for a long time. In addition to limiting your losses during bearish periods, this method prevents you from closing out your positions.
Set buy and sell limits
However, using a long-term approach has a major drawback. Because this strategy greatly minimizes risk, it also limits returns. So instead of taking this ultra-conservative approach, you can simply set limits. This will allow you to invest more in crypto while minimizing risk. To set a purchase limit (limit purchase order) you need to set a return threshold that will automatically trigger the purchase of crypto when its price reaches a certain level. Selling Limits (limited order sale) it works the other way around: you order the market to sell when the price of your cryptocurrency reaches a certain threshold.
The use of buy and sell limits is a common practice among day traders looking for short-term returns. This is a very effective method of limiting losses while generating profits.
Diversify your portfolio
In general, and especially during periods of crypto winter, portfolio diversification significantly reduces risk. This applies to both traditional stock markets and the crypto market. In the digital asset market, you can invest in the most well-known cryptocurrencies such as Bitcoin and Ethereum and allocate some of your capital to lesser-known altcoins. Of course, the ratio of each of these assets should correspond to its level of risk. The highest risk coins and tokens should only represent a small portion of your portfolio.
Finally, to survive the crypto winter, you also need to have realistic expectations and keep in mind that the crypto market is very volatile. Also note that crypto predictions are mostly based on historical data volume, which remains quite low so far.
Limiting your risk exposure by diversifying, setting limits and investing for the long term are the best ways to survive the crypto winter. For example, during the crypto winter we witnessed between March and July 2021, the price of BTC fell from $57,000 to $31,000, but quickly recovered to a peak of $64,400 in November.
At Kyrrex, we believe that portfolio diversification is very effective in protecting against sharp declines in various asset classes.
Is Crypto Winter Coming To An End?
Without wanting to be too optimistic, it seems that the crypto winter is already coming to an end. The world economy is beginning to recover from the initial shock caused by the Russian-Ukrainian war. Central banks have reined in inflation and stock markets are showing signs of recovery. Cryptocurrencies seem to follow a similar pattern. Now might be a good time to add some crypto to your portfolio before another bull market arrives. Following the strategies explained above can be a good way to test the market, generate profits and avoid losses.
About the author
Viktor Kochetov is the CEO of Kyrrex. After spending several years in traditional financial markets, Victor supported several fintech projects, which allowed him to gain serious experience in the world of crypto and blockchain. In 2018, he launched Kyrrex, a Malta-based crypto-fiat ecosystem that offers a wide range of products and services. Today, its main product is the Kyrrex crypto exchange, which processes thousands of crypto trades daily.
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