We Are in a Crypto Winter. Here's How to Survive

Winter is coming…take these steps to minimize the risks.

As a crypto investor, talk of a crypto winter is extremely disconcerting. But after six months of bearish price action, prices continue to slide. Bitcoin (BTC) is trading at more than half its all-time high, and many other cryptos have fallen even further. Add in the possibility of a recession and the impact of ongoing economic tightening measures, and it's time to face the fact that winter may be upon us.

Surviving a crypto winter

One way to survive a period of prolonged price decreases is to remember that dips -- even prolonged ones -- are a normal part of investing. This can help investors keep a sense of perspective as prices fall, and hopefully avoid panic selling. But even more important is to mitigate as many extra risks as possible. Cryptocurrency investing is already a precarious endeavor, and those dangers are even starker during a bear market. Here are three ways to protect yourself.

1. Many cryptocurrencies and platforms could fail -- plan accordingly

A number of crypto projects did not survive the last crypto winter back in 2018. The industry is more developed now, but many cryptocurrencies could still fail in the coming year. The risk is greater for smaller altcoins with little or no utility while more-established cryptos have a much better chance of surviving and eventually succeeding in the long term. Now is the time to stick to bigger crypto projects.

There's another risk to consider as well: Crypto platforms themselves could collapse. We know that several top crypto exchanges are already struggling and have laid off staff. Gemini even referred to a crypto winter in its blog post about its job cuts and most recently, top crypto lender Celsius froze withdrawals on its platform.

If you keep your digital assets in a custodial wallet on a crypto exchange or lending platform, find out what protection you have if the platform goes under. For example, Coinbase recently alerted customers to the fact that their assets could be at risk if it went bankrupt. Funds on other exchanges could face similar risks.

Hopefully none of the major players will cease trading completely, but it still makes sense to try to safeguard your crypto. One way to protect yourself against platform failure is to move your digital assets into a crypto wallet you control. Bear in mind that this route brings extra responsibilities. For example, if you lose the password to your wallet, there's no handy "forgot password" button. With billions of dollars worth of Bitcoin stuck in wallets people can't access, some investors are nervous about this storage option.

2. Only invest money you can afford to lose

The golden rule when buying high-risk assets is to only use money you're comfortable losing. If you buy crypto using money you need for other financial goals, a complete crypto collapse could derail your long-term plans. You may also be forced to sell your assets at a loss because you can't afford to wait for prices to increase again.

Prioritize other goals, such as creating an emergency fund or paying down debt, over any form of crypto investing. It's also valuable to ensure crypto only represents a small portion of your overall portfolio. That way if crypto does fail, you still have other safer assets to fall back on. Once the crypto market recovers, prices may eventually soar again. But they may not, so don't bet the house on it.

3. Prepare for further price dips

There's often a rallying cry to "buy the dip" on social media when crypto prices fall. This can make sense in certain situations, but there are a lot of caveats. Crucially, prices may well fall further. If you'd bought the dip in January when Bitcoin was down about a third on its November high, you'd still be looking at significant losses today.

Some investors use dollar-cost averaging -- buying smaller amounts at regular intervals -- to even out some of the volatility. Rather than, for example, buying Bitcoin worth $1,000 in one go, dollar-cost averaging might involve spending $100 at set intervals. That way, you're not stuck trying to time the market, and if the price does continue to fall, you'll buy at least part of your BTC at the lower price.

Bottom line

Winters can feel bleak, and there are often points when it seems as if the sun will never shine again. But seasons and markets both follow cycles -- bear markets follow bull markets just as spring and summer follow winter. In the stock market, history shows us that prices have always eventually recovered.

The challenge with crypto is that these are riskier assets than, say, equities. It is still a relatively new and unregulated market and there's a small chance it could collapse completely. So far, Bitcoin has come through even significant dips and gone on to reach new highs. As a long-term investor, there are many reasons to think it can do so again. However, the trick to surviving a prolonged winter is to prepare for the worst and hope for the best.