HODL OR LET IT GO: Demystifying the “Bitcoin Winter” Spell

We are in the middle of the 24th Winter Olympics. For some of you it may feel as if your crypto portfolio has tanked for the 24th time and entered another rough crypto winter as well. Bitcoin dropped a few weeks ago to levels not seen since the last big crash in July 2021. Even though it seems as if we are out of the woods, a possible long lasting downward trend is continuously worrying crypto investors and many are wondering if another crypto winter is looming. But are they right or will we indeed see a strong rebound happening?

So far, it seems as if they are! Bitcoin left 2021 on a comparatively higher note. Bitcoin hit its all-time high on 10 Nov by crossing the $68,000 mark. However, in the month of Jan 2022, the impact of stalling prices and volatility started to show at full bloom.

The persistence of the COVID-19 pandemic as well as the FED’s policy changes also caused widespread market uncertainty. For those who are new to the crypto world, the recent Bitcoin slump might seem to be somewhat unusual and terrifying. Yet despite significant drops in prices, experts still believed that Bitcoin will bounce back and cross the $100,000 sometime in 2022.

Bitcoin Crash History

Bitcoin’s recent crash isn’t new, especially to crypto veterans. In fact, Bitcoin has crashed by as much as 80% in its early days. This makes the first bigger crash of the year seem mild in comparison. Long-term crypto investors consider such lows and highs typical market fluctuations and the perfect time to unload or stock up on their crypto portfolio.

Similar to stocks, crypto prices are determined by supply and demand. For instance, the price of a coin goes up if the demand exceeds the current supply. In the same vein, the price decreases when the demand goes down. The total number of existing Bitcoin can’t exceed 21 million, which is a natural barrier set by the developers and hardcoded in the Bitcoin genesis block.

When an event questions the long-term future of Bitcoin, the demand stifles temporarily. This, in turn, causes this currency to step back and leave its footing. By taking into account the historical pattern, drops like this are actually healthy for long term Bitcoin HODLers, as it opens up opportunities to buy (back) some cheap Bitcoins and ride the next wave up.

Bitcoin Behaved as Expected

After hitting $68k+, an all-time high on 10 Nov 2021, Bitcoin has shown a steep decline. It has lost almost 20% in terms of its value. Yet crashes like these are pretty much predictable, if you consider past patterns. In most cases, these patterns are triggered by global events.

For instance, the major crash of 2018 was a result of news that Japan and South Korea were planning to ban Bitcoin. A similar crash also happened when the Chinese government revealed its plans to ban cryptocurrency transactions.

Such restrictions and regulations will dampen Bitcoin investment sentiments, resulting in widespread panic selling of cryptocurrencies. Investors will then shift gears and reallocate their portfolio to focus on less risky investments like gold and fiat currency, Bitcoin sees a downward trend.

These downward trends usually take a few weeks to a few months at most and are followed by a quick reversal. Any good investor knows that they have to sell on the way up and buy back when the sentiment shifts. Selling now into the hands of investors could be the wrong decision overall.

What Do Crypto Investors Think?

For long-term investors who rely on a buy and hold strategy, swings are very much expected. A dip like the recent one isn’t a thing that should raise concerns. On the contrary, experienced investors avoid checking their crypto investments every few minutes when cryptocurrency charts are all deep in the red.

According to experts, you should keep your crypto investments under 30% of your total portfolio. If you have already done that, these swings shouldn’t bother you. This is so, as these downs will continue to happen and over time higher lows are most likely guaranteed.

Price volatility is an accepted trait of every cryptocurrency. Hence, this is something every crypto investor has to deal with, using wise and prudent investment tactics. Furthermore, if your crypto investment isn’t hampering your financial goals, there is nothing to be overly worried about.

Even if such dips do bother you, make sure to think about diversifying your crypto allocations. But avoid making quick strategies or acting in a hurry. The best course of action is to consider a more viable way forward, something that you are comfortable with.

For instance, you should think about diversifying your crypto investment. This can help you overcome most of the impact caused by the fluctuations. Don’t get too emotionally involved and start panic selling. Selling a cryptocurrency at the wrong time is something every investor should avoid.

Bitcoin Has a Tendency to Bounce Back

Bitcoin experts expected a huge increase in 2020, which held true. This upward trend was speculated based on the best performance of Bitcoin during 2013 and 2017. Such an increase in Bitcoin’s price was experienced after almost every halving event.

The reward for mining Bitcoin is cut in half approximately every four years. This is referred to as the "Halving” event. Initially, miners used to get 50 Bitcoins with every new block. After 3 halving events, the current reward stands at 6.25 Bitcoin/block.

The demand for Bitcoin grew after almost every halving event. This leads to an increase in the price. The temporary crashes that happen now and then are part of the journey. Hence, Bitcoin investors should treat them as temporary events.

If you are interested in buying Bitcoin but haven’t invested yet, this might be an opportunity to do so via platforms like Cake DeFi. Since Bitcoin's price is always soaring, its price stays out of range for most investors. However, now that the price has gone down to a reasonably low point, Bitcoin is well within reach again.

Summary

Bitcoin is a great investment if you have a HODL strategy or if you let your crypto coins work for you by investing them into DeFi products like Cake DeFi’s Lending, Staking or Liquidity Mining where returns north of 50% per annum are rather the norm than the exception.

Chances are that the price of Bitcoin is going to stay quite volatile over the next few weeks with inflation angst increasing and the Ukraine crisis looming. However, crypto is here to stay and should always be a component in any well diversified portfolio, since its long term prospects are stellar.