In today’s Exponential Investor:

  • It maybe be summer, but in crypto it’s winter
  • BlackRock and $10 trillion of access to crypto
  • Three things to do to survive a crypto winter

This summer the UK hit record temperatures. This winter… well, it’s anyone’s guess.

What we know for sure is that winter is always cold. The days are always short. And, at least this year, everyone’s energy bills will be higher.

Summer is supposed to be full of fun, sun and frivolity. Winters are supposed to be cold, gloomy and miserable.

However, if you ask me, winter is always better than summer.

That’s right, you’re hearing an Australian say that winter is better than summer. And that when its gloomy and cold, it’s the best time to be alive.

I mean that when it comes to the weather… I particularly mean it when it comes to crypto winters.

What is a crypto winter?

A crypto winter means a crypto market that is cold, gloomy and generally full of depressed prices. You can see where the “winter” term comes from.

Crypto winters often come about after a euphoric crypto “summer” where FOMO (fear of missing out) is abundant and the hype train left the station long ago.

These “summer” and “winter” cycles in crypto come about more often than people think.

The last crypto winter of late 2017 and 2018 materialised as the initial coin offering (ICO) boom took hold of the market… and then busted. An ICO is when capital is raised for new crypto projects in exchange for coin offerings to early investors.

It’s the only way the typical retail investor has ever been able to get the jump on institutional investors. Nonetheless, crypto winters come and go: most of the time, they can be crushing for the “noob” (new) investors.

The thing is, when you’ve been in crypto as long as we have, you come to not just enjoy winter, but relish it!

Are we in a crypto “winter”?

Yes. We really are in one.

This has a lot of the hallmarks of the “winter” from 2014’s bust and 2018’s bust. So it’s fair to say that we’re in a crypto “winter”.

Whether it lasts as long as the others… well, only time will tell.

But here’s the inside scoop.

There’s actually a lot to get excited about. So don’t get too depressed if we are in a crypto winter.

Everyone always says “this time is different” when it comes to a winter. And maybe this time is different. There’s a lot to suggest it might be.

Where today differs from the most recent crypto winter of 2018-20 is that the drop in crypto valuations is mainly due to global economic and wider market factors, and not due to systemic issues.

The crypto landscape, for example, is more proactive towards regulation these days, with acceptance towards crypto growing as its potential becomes ever clearer. For example, the European Union (EU) introduced preliminary legislation in July 2022, aimed at protecting consumers from risks such as fraud and scams. With more regulation, the uncertainty and fear sentiment that reverberated around the 2018 market may not be as strong, and persist for as long.

Furthermore, institutional, old money, traditional finance (TradFi) giants like BlackRock are getting into the space.

Recently, BlackRock (with around $10 trillion of assets under management) announced that it would partner with Coinbase to provide access to crypto markets for its institutional investors.

That kind of thing was still lightyears away in the previous two winters. But the announcement of this has come right in the midst of this current winter.

What’s more, crypto is far more entrenched into the global financial system than it was in 2018. Back then, it was only really in the hands of retail investors and a handful of corporations. Now, it is widespread across retail, corporations and even sovereign governments. As was not the case four years ago, it is clearly here to stay.

How long does a crypto winter last?

Most recently, the crypto market rose for a year after the end of the crypto winter, soared for six months in the second half of 2021, stagnated between January and June this year, and is now falling.

However, the crypto winter that began in late 2017 dragged on for around 18 months.

Crypto is so new that we don’t have much hard data with which to get an idea of how long this crypto winter will last.

But it’s fair to say anything from six to 18 months is about par for the course.

The thing Is, when the frost thaws and the market turns back to summer, you want to have yourself already in the game.

That is because, when the market turns, it does so hard and fast.

You don’t want to wait on the sidelines for the summer to come. By the time you realise summer is here, you’ve already missed out on the meteoric rises.

What you want to do is make sure you embrace the winter as we do, get your skin-full of crypto positions while the market is cold, and get ready for summer fun.

For example, when is the best time to buy summer clothes? In the peak of summer?

No.

You buy next year’s summer kit in winter, when all the sales are on.

It’s exactly the same when it comes to crypto.

How to profit from a crypto winter?

First and foremost, you need to manage your risk accordingly. Hopefully, the crypto that you have in your portfolio has been purchased with money that you can afford to lose. That’s always the case.

You should never use debt or leverage in the crypto markets.

However, a crypto winter can be an opportune time to purchase crypto tokens that have fallen to heavily discounted values. Buying now could leave the most room for upside gain when summer returns.

Of course, when buying crypto, it’s not shooting fish in a barrel.

You need to factor in the right kind of analysis.

And it’s virtually impossible to clearly identify when is the absolute depth of a crypto winter. So be prepared to have the value of your holdings swing about wildly, both up and down.

However, keep a long-term view in mind and ride out the volatility by never risking more than you can afford to lose. Do that and the change from winter to summer can be the most fun you’ll ever have in investment markets.

So here’s three things to do to prepare and potentially profit from a crypto winter…

  1. Get access to a trustworthy information source.
  2. Get your risk capital allocation figured out. Know how much you’re prepared to put into the market, knowing full well that you can afford it and won’t lose any sleep at night – if the value were to head 50%, 75%, 99% or 100% lower.
  3. Have a plan and have fun testing and trying.

Until next time…

Sam Volkering
Editor, Exponential Investor