Is A Crypto Winter Coming For Bitcoin?

Bitcoin and other digital currency investors dread feeling the chill that heralds the onset of a crypto winter.

But although crypto prices may plunge like the temperature on a cold night, a crypto winter is not necessarily bad for investors.

Buyers and speculators can get more bang for their buck when crypto prices slump with a buy low, sell high strategy.

Early signs of a weather change are there. A rampant bear market and a price collapse are already acting on the market.

If a crypto winter is coming, the next bell-change is a slump in trading.

Bear Essentials

The first sign a crypto winter is on the way is a bear market.

A bear market is when crypto prices fall at least 20 per cent over a sustained period – typically at least two months.

Bitcoin, the world’s best-known and most valuable digital currency, accounting for around half of the crypto market cap of $1.65 trillion, hit a peak price of $68,566 on November 8, 2021, and now trades 53 per cent down from the peak at $36,599.

The data fulfils the bear essentials – a sustained drop of at least a fifth in value over a prolonged time.

Other common factors seen in a bear market are miserable sentiment from investors and a general malaise in the economy. If this sentiment builds over the next few weeks remains to be seen.

Another indicator is bear markets are often cyclical – and crypto has been locked in the jaws of a bear twice before.

When Was The Last Crypto Winter?

The frosty fingers of a bear market have held crypto in an icy grip twice before – in 2017 and more recently in 2021.

In December 2017, the bitcoin price broke out and hit the heady height of $19,114. Investors were ecstatic and cheered bitcoin and other cryptos as a technology revolution that would sweep the world of a creaking and archaic banking system controlled by big businesses and governments.

Within weeks of the jubilation, desolation set in as bitcoin values slumped to $3,256 by December 2018. The false dawns of prolonged growth in value persisted until September 2020, when Bitcoin finally picked up.

Around this time, Bitcoin wallowed around the $10,000 mark and seemed to have found a level.

But the blue touchpaper was lit, and crypto soared in value to $58,793 in April 2021 only to almost instantly drop to $29,807. Straightaway, crypto prices exploded and continued to grow to the all-time high of $66,971 in November 2021.

And the rest is history. Another price plunge bringing the market to the edge of a crypto winter.

In these dark times, bitcoin lost up to 80 per cent of value.

Is A Crypto Winter Bad For Investors?

Every cloud has a silver lining, according to the proverb, and a crypto winter brings hope for many investors.

Buying at rock-bottom in readiness for selling at a profit when the price picks up is one method to try – imaginatively called the buy low, sell high strategy.

Buy low, sell high means what it says – investors buy crypto at prices near the bottom of the market and hold them until the markets pick up.

But this strategy is not as simple as first seems. Market highs and lows are notoriously hard to predict as they involve emotion and behavioural psychology.

Experienced traders will look for firmer evidence, such as moving averages, business sentiment, and the crypto price cycle movements.

Moving averages

A moving average is based on a crypto’s historic data. This goes back to January 2009, when bitcoin was the first crypto to hit the internet. A moving average shows a commodity’s price rises and falls over time but smooths the bumps to give a general trend.

A common approach is to view graphs depicting the 50-day and 200-day moving average. When the lines cross each other, investors buy, and when they cross again, they sell.

Find Bitcoin’s moving average

Business sentiment

Business sentiment is hard for an outsider to judge.

Experienced investors look for moments when fear or greed grip the crypto market. Fear means buy, and greed signals a sale as these are the points when prices ebb and flow to their lowest and highest.

Watch consumer and business sentiment surveys for a handle on what the market is thinking.

Short selling

Short selling is a gamble that a stock will drop in price. To short sell, an investor borrows the money to buy a stock, sells intending to buy back at a lower price and then completes the purchase.

The hope is the sale price covers the borrowing, and the investor still holds the stock while making a profit.

This is not an investment strategy for the faint-hearted. The stock value can drop or rise in price at any time and if the margins are fine, leave the seller stranded with a debt.

Bitcoin ETF

Establishing a bitcoin exchange-traded fund is an ongoing process as the US Securities and Exchange Commission (SEC) is reluctant to unleash an unregulated asset on retail investors.

An ETF takes away the worry of buying and holding cryptos in an unregulated environment as the investor buys a stake in a fund mimicking the performance of bitcoin, not the crypto itself.

Currently, the only bitcoin ETF is Bitcoin Tracker One XBT.

Crypto And The Markets

Bitcoin and other cryptos have mirrored the performance of stock markets this year.

Movements seem to reflect a growing link between crypto prices and the value of more traditional assets. One reason for this could be because professional traders are moving into crypto.

Just look at this chart comparing Bitcoin (blue) and NASDAQ 100 (red) performance published by the Financial Times and Bloomberg this month:

“Prior to the pandemic, bitcoin and other digital assets showed low correlations to traditional financial market variables — in effect, crypto behaved as an entirely different ecosystem,” said Zach Pandl, co-head of foreign exchange strategy at Goldman Sachs.

“But over the last two years, as bitcoin has seen wider mainstream adoption, its correlation with macro assets has picked up.”

Is A Crypto Winter Coming For Bitcoin FAQ

What is a retail investor?

A retail investor is a private individual who buys and sells funds or stocks and shares, as opposed to a finance professional.

How do I invest in crypto?

Setting up a crypto investment is easy. Set up an account at a crypto exchange and link a digital wallet. The transactions are carried out through the wallet that can transfer cash to digital currency.

Alternatively, buy into the Bitcoin ETF to avoid the hassle of market watching, setting up a digital wallet and holding crypto.

Which coins are the best investment?

You can find investment choice is stifled by the exchange or crypto wallet you pick, as many only accept the major cryptos.

Check out the minimum and maximum investments you can make, so you are not trapped in an exchange that doesn’t cater to your needs.

Draft a list of possible exchanges and wallets once you have decided which cryptos you want. Then, compare the set-up fees, transaction costs and other charges.

Diversify your crypto holdings

Diversification is a must for all investors, and the same goes for crypto fans. Bitcoin may be worth the most, but other cryptos deserve a look as well, like Cardano, Ethereum, Bitcoin and Polkadot.

Can’t afford bitcoin?

Even while the price is falling, many investors cannot afford to buy into bitcoin at $36,000 a pop.
Fortunately, bitcoin and some other cryptos can be divided into smaller investments at lower prices. However, your minimum investment is probably limited by the terms of business of your exchange.
For example,

Coinbase lets you buy as little as $2 of crypto, while the minimum at Binance is $10.

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