Profit in a Crypto Winter: Stablecoins, Altcoins & DeFi
It’s been a rocky few weeks for the crypto market. Since Bitcoin rallied to an all-time high above $69,000 in November, it’s slumped by almost 50%, dragging other lower cap coins along with it. Various factors, including an over-exhausted market, Omicron-related anxiety, and the Federal Reserve’s signal that it plans to hike interest rates, have fueled the idea that crypto is entering its next winter.
While many market participants fear bear markets, they can provide savvy traders and investors with the opportunity to build their portfolios and generate outsized returns once the tides turn. However, it takes a strategic approach to come out on top. Bear markets can test the resilience of even the most ardent crypto believers, so it’s important to stay level-headed and have a plan.
In this article, we’ll cover a few strategies that investors should consider in preparation for arduous times, whether it turns out we’re headed for a bear market or just at a temporary swing.
Earning Yield With Stablecoins
When the 2018 crypto winter hit, some of the most fundamental parts of the ecosystem today did not exist. DeFi, for example, had not yet emerged: it wasn’t until 2019 that protocols like Uniswap and Aave started to gain traction. Now, DeFi provides a way for crypto users to earn a yield on their holdings – even as the market goes sideways. Several stablecoins have gained widespread adoption over the last few years. This has allowed DeFi users to peg a portion of their crypto to the US dollar as a hedge against volatility without exiting the crypto market.
In order to generate yields, stablecoins can be deposited into peer-to-peer lending protocols. The high demand for leverage in DeFi means that interest rates far surpass those offered by traditional banks. Projects like Curve Finance and Anchor Protocol can pay upwards of 20% APY for
stablecoin
Stablecoin
Unlike other cryptocurrencies like Bitcoin and Ethereum, stablecoins are cryptocurrencies that have been designed to keep a stable value. Placing a greater emphasis on stability over volatility can be a huge draw for some investors. Many individuals can be turned off from large swings and uncertainty presented by cryptos relative to other traditional assets.Stablecoins control for this volatility by being pegged to another cryptocurrency, fiat money, or to exchange-traded commodities, including gold, silver, or others. Advantages of StablecoinsOf note, stablecoins redeemable in currency, commodities, or fiat money are also said to be backed, whereas those tied to an algorithm are not considered to be so.There are several advantages of asset backed crypto. First, these coins are stabilized by assets that fluctuate outside of the crypto space, that is. This can help mitigate the financial risk associated with these assets.For example, Bitcoin and altcoins are highly correlated, so that cryptocurrency holders cannot escape periodic price falls. Stablecoins control for this vulnerability, allowing for the diversification of risk in a portfolio.Stablecoins also possess a mechanism for redeeming the asset backing them. This grants an additional level of confidence associated with the coin and are unlikely to drop below the value of the underlying physical asset, due to the effects such as arbitrage.For example, fiat-pegged coins are coins that are tied to a specified amount of fiat currency, usually on a one-to-one ratio (i.e.1 StablecoinX = $1). The companies that issue these currencies must have fiat reserves in the equivalent amount of the stablecoins they have issued.Crypto-pegged stablecoins constitute coins that are tied to a specified amount of another cryptocurrency, such as Bitcoin or Ethereum. Algorithmic stablecoins use supply-and-demand to automatically maintain a stable value.
Unlike other cryptocurrencies like Bitcoin and Ethereum, stablecoins are cryptocurrencies that have been designed to keep a stable value. Placing a greater emphasis on stability over volatility can be a huge draw for some investors. Many individuals can be turned off from large swings and uncertainty presented by cryptos relative to other traditional assets.Stablecoins control for this volatility by being pegged to another cryptocurrency, fiat money, or to exchange-traded commodities, including gold, silver, or others. Advantages of StablecoinsOf note, stablecoins redeemable in currency, commodities, or fiat money are also said to be backed, whereas those tied to an algorithm are not considered to be so.There are several advantages of asset backed crypto. First, these coins are stabilized by assets that fluctuate outside of the crypto space, that is. This can help mitigate the financial risk associated with these assets.For example, Bitcoin and altcoins are highly correlated, so that cryptocurrency holders cannot escape periodic price falls. Stablecoins control for this vulnerability, allowing for the diversification of risk in a portfolio.Stablecoins also possess a mechanism for redeeming the asset backing them. This grants an additional level of confidence associated with the coin and are unlikely to drop below the value of the underlying physical asset, due to the effects such as arbitrage.For example, fiat-pegged coins are coins that are tied to a specified amount of fiat currency, usually on a one-to-one ratio (i.e.1 StablecoinX = $1). The companies that issue these currencies must have fiat reserves in the equivalent amount of the stablecoins they have issued.Crypto-pegged stablecoins constitute coins that are tied to a specified amount of another cryptocurrency, such as Bitcoin or Ethereum. Algorithmic stablecoins use supply-and-demand to automatically maintain a stable value.
Read this Term deposits, which means that users can still grow their portfolios even if the market experiences a lull period.
Picking Strong Fundamentals
While bear markets are known for bringing brutal price action across the market, it’s important to note that some assets will outperform even during extended periods of decline. Chainlink, for example, trended up from 2018 through 2020 while
Bitcoin
Bitcoin
Bitcoin is the world’s first digital currency that was created in 2009 by a mysterious entity named Satoshi Nakamoto. As a digital currency or cryptocurrency, Bitcoin operates without a central bank or single administrator. Instead, Bitcoin can be sent via a Peer-to-Peer (P2P) networking, devoid of intermediaries.Bitcoins are not issued or backed by any governments or banks, and Bitcoin is not considered to be legal tender, although they do have status as an acknowledged transfer of value in some jurisdictions. Rather than composing a physical currency, Bitcoins are pieces of code that can be sent and received across a kind of distributed ledger network called a blockchain. Transactions on the Bitcoin network are confirmed by a network of computers (or nodes) that solve a series of complex equations. This process is called mining. In exchange for mining, the computers receive rewards in the form of new Bitcoins. Mining grows increasingly difficult over time, and the rewards get smaller and smaller. There is a total of 21 million Bitcoins. As of May 2020, there are 18.3 million Bitcoins in circulation. This number changes approximately every 10 minutes when new blocks are mined. Presently, each new block adds 12.5 bitcoins into circulation.Since its inception, Bitcoin has remained the most popular and largest cryptocurrency in terms of market cap in the world. Bitcoin’s popularity has contributed significantly to the release of thousands of other cryptocurrencies, called “altcoins.” While the crypto market was originally hegemonic, today’s landscape features countless altcoins.Bitcoin ControversyBitcoin has been extremely controversial since its original launch. Given its mercurial nature, Bitcoin has been criticized for its use in illegal transactions and money laundering.As its impossible to trace, these attributes make Bitcoin the ideal vehicle for illicit behavior. Moreover, critics point to its high electricity consumption for mining, rampant price volatility, and thefts from exchanges. Bitcoin has been seen as a speculative bubble given its lack of oversight. The crypto has weathered multiple collapses and survived over a decade so far. Unlike its launch back in 2009, Bitcoin today is viewed far differently and is much more accepted by merchants and other entities.
Bitcoin is the world’s first digital currency that was created in 2009 by a mysterious entity named Satoshi Nakamoto. As a digital currency or cryptocurrency, Bitcoin operates without a central bank or single administrator. Instead, Bitcoin can be sent via a Peer-to-Peer (P2P) networking, devoid of intermediaries.Bitcoins are not issued or backed by any governments or banks, and Bitcoin is not considered to be legal tender, although they do have status as an acknowledged transfer of value in some jurisdictions. Rather than composing a physical currency, Bitcoins are pieces of code that can be sent and received across a kind of distributed ledger network called a blockchain. Transactions on the Bitcoin network are confirmed by a network of computers (or nodes) that solve a series of complex equations. This process is called mining. In exchange for mining, the computers receive rewards in the form of new Bitcoins. Mining grows increasingly difficult over time, and the rewards get smaller and smaller. There is a total of 21 million Bitcoins. As of May 2020, there are 18.3 million Bitcoins in circulation. This number changes approximately every 10 minutes when new blocks are mined. Presently, each new block adds 12.5 bitcoins into circulation.Since its inception, Bitcoin has remained the most popular and largest cryptocurrency in terms of market cap in the world. Bitcoin’s popularity has contributed significantly to the release of thousands of other cryptocurrencies, called “altcoins.” While the crypto market was originally hegemonic, today’s landscape features countless altcoins.Bitcoin ControversyBitcoin has been extremely controversial since its original launch. Given its mercurial nature, Bitcoin has been criticized for its use in illegal transactions and money laundering.As its impossible to trace, these attributes make Bitcoin the ideal vehicle for illicit behavior. Moreover, critics point to its high electricity consumption for mining, rampant price volatility, and thefts from exchanges. Bitcoin has been seen as a speculative bubble given its lack of oversight. The crypto has weathered multiple collapses and survived over a decade so far. Unlike its launch back in 2009, Bitcoin today is viewed far differently and is much more accepted by merchants and other entities.
Read this Term, Ethereum, and most other digital assets struggled to hold their value.
When choosing assets to invest in during the bear market, look for strong fundamentals. The good news is that these projects are easier to spot when there is less noise. Those with a strong community also have an improved chance of outperforming the market, although it’s worth noting that it can be beneficial to plan for the longer term – as it’s difficult to predict how long you’ll be waiting for the market to pick up.
The Benefits of DeFi Staking and Borrowing
While stablecoin diversification and picking out the right assets to buy into are strong strategies for conquering bear markets, it’s also worth considering the benefits of staking across Layer-1 networks and the DeFi ecosystem. Today, there are many options for earning yield from staking tokens. If you believe in an asset, staking is a great way to gain exposure and generate passive income, as well as generating support for its price.
Besides staking, DeFi provides many other opportunities to generate profits. Many users opt to deposit their capital as collateral in order to take out loans and make the most of prolonged downturns. DeFi makes it incredibly easy to borrow capital, but it should be noted this is only recommended for more experienced users.
Of all the DeFi ecosystems in crypto today, Ethereum’s is by far the most developed and robust, but other networks like Solana, Avalanche, Terra, and Fantom offer an abundance of staking options, as well as significantly lower fees for those with smaller portfolios.
Summing Up
Having a strategy for even the worst cases can help you ensure that you are well-equipped to come out on top even when times get tough.
It’s often said that the most important way to win in crypto is to “survive”, and this is something you should always keep in mind. Avoid going outside of your areas of expertise by taking up leverage if you’re not an expert, and resist the temptation to over-trade.
If markets turn south, losing interest can equal missing out on life-changing opportunities. Many of the world’s most successful crypto traders and investors are those who weathered the bear markets and stuck around when most others lost hope. If crypto lives up to its potential, the most active participants should reap the rewards for years to come.
It’s been a rocky few weeks for the crypto market. Since Bitcoin rallied to an all-time high above $69,000 in November, it’s slumped by almost 50%, dragging other lower cap coins along with it. Various factors, including an over-exhausted market, Omicron-related anxiety, and the Federal Reserve’s signal that it plans to hike interest rates, have fueled the idea that crypto is entering its next winter.
While many market participants fear bear markets, they can provide savvy traders and investors with the opportunity to build their portfolios and generate outsized returns once the tides turn. However, it takes a strategic approach to come out on top. Bear markets can test the resilience of even the most ardent crypto believers, so it’s important to stay level-headed and have a plan.
In this article, we’ll cover a few strategies that investors should consider in preparation for arduous times, whether it turns out we’re headed for a bear market or just at a temporary swing.
Earning Yield With Stablecoins
When the 2018 crypto winter hit, some of the most fundamental parts of the ecosystem today did not exist. DeFi, for example, had not yet emerged: it wasn’t until 2019 that protocols like Uniswap and Aave started to gain traction. Now, DeFi provides a way for crypto users to earn a yield on their holdings – even as the market goes sideways. Several stablecoins have gained widespread adoption over the last few years. This has allowed DeFi users to peg a portion of their crypto to the US dollar as a hedge against volatility without exiting the crypto market.
In order to generate yields, stablecoins can be deposited into peer-to-peer lending protocols. The high demand for leverage in DeFi means that interest rates far surpass those offered by traditional banks. Projects like Curve Finance and Anchor Protocol can pay upwards of 20% APY for
stablecoin
Stablecoin
Unlike other cryptocurrencies like Bitcoin and Ethereum, stablecoins are cryptocurrencies that have been designed to keep a stable value. Placing a greater emphasis on stability over volatility can be a huge draw for some investors. Many individuals can be turned off from large swings and uncertainty presented by cryptos relative to other traditional assets.Stablecoins control for this volatility by being pegged to another cryptocurrency, fiat money, or to exchange-traded commodities, including gold, silver, or others. Advantages of StablecoinsOf note, stablecoins redeemable in currency, commodities, or fiat money are also said to be backed, whereas those tied to an algorithm are not considered to be so.There are several advantages of asset backed crypto. First, these coins are stabilized by assets that fluctuate outside of the crypto space, that is. This can help mitigate the financial risk associated with these assets.For example, Bitcoin and altcoins are highly correlated, so that cryptocurrency holders cannot escape periodic price falls. Stablecoins control for this vulnerability, allowing for the diversification of risk in a portfolio.Stablecoins also possess a mechanism for redeeming the asset backing them. This grants an additional level of confidence associated with the coin and are unlikely to drop below the value of the underlying physical asset, due to the effects such as arbitrage.For example, fiat-pegged coins are coins that are tied to a specified amount of fiat currency, usually on a one-to-one ratio (i.e.1 StablecoinX = $1). The companies that issue these currencies must have fiat reserves in the equivalent amount of the stablecoins they have issued.Crypto-pegged stablecoins constitute coins that are tied to a specified amount of another cryptocurrency, such as Bitcoin or Ethereum. Algorithmic stablecoins use supply-and-demand to automatically maintain a stable value.
Unlike other cryptocurrencies like Bitcoin and Ethereum, stablecoins are cryptocurrencies that have been designed to keep a stable value. Placing a greater emphasis on stability over volatility can be a huge draw for some investors. Many individuals can be turned off from large swings and uncertainty presented by cryptos relative to other traditional assets.Stablecoins control for this volatility by being pegged to another cryptocurrency, fiat money, or to exchange-traded commodities, including gold, silver, or others. Advantages of StablecoinsOf note, stablecoins redeemable in currency, commodities, or fiat money are also said to be backed, whereas those tied to an algorithm are not considered to be so.There are several advantages of asset backed crypto. First, these coins are stabilized by assets that fluctuate outside of the crypto space, that is. This can help mitigate the financial risk associated with these assets.For example, Bitcoin and altcoins are highly correlated, so that cryptocurrency holders cannot escape periodic price falls. Stablecoins control for this vulnerability, allowing for the diversification of risk in a portfolio.Stablecoins also possess a mechanism for redeeming the asset backing them. This grants an additional level of confidence associated with the coin and are unlikely to drop below the value of the underlying physical asset, due to the effects such as arbitrage.For example, fiat-pegged coins are coins that are tied to a specified amount of fiat currency, usually on a one-to-one ratio (i.e.1 StablecoinX = $1). The companies that issue these currencies must have fiat reserves in the equivalent amount of the stablecoins they have issued.Crypto-pegged stablecoins constitute coins that are tied to a specified amount of another cryptocurrency, such as Bitcoin or Ethereum. Algorithmic stablecoins use supply-and-demand to automatically maintain a stable value.
Read this Term deposits, which means that users can still grow their portfolios even if the market experiences a lull period.
Picking Strong Fundamentals
While bear markets are known for bringing brutal price action across the market, it’s important to note that some assets will outperform even during extended periods of decline. Chainlink, for example, trended up from 2018 through 2020 while
Bitcoin
Bitcoin
Bitcoin is the world’s first digital currency that was created in 2009 by a mysterious entity named Satoshi Nakamoto. As a digital currency or cryptocurrency, Bitcoin operates without a central bank or single administrator. Instead, Bitcoin can be sent via a Peer-to-Peer (P2P) networking, devoid of intermediaries.Bitcoins are not issued or backed by any governments or banks, and Bitcoin is not considered to be legal tender, although they do have status as an acknowledged transfer of value in some jurisdictions. Rather than composing a physical currency, Bitcoins are pieces of code that can be sent and received across a kind of distributed ledger network called a blockchain. Transactions on the Bitcoin network are confirmed by a network of computers (or nodes) that solve a series of complex equations. This process is called mining. In exchange for mining, the computers receive rewards in the form of new Bitcoins. Mining grows increasingly difficult over time, and the rewards get smaller and smaller. There is a total of 21 million Bitcoins. As of May 2020, there are 18.3 million Bitcoins in circulation. This number changes approximately every 10 minutes when new blocks are mined. Presently, each new block adds 12.5 bitcoins into circulation.Since its inception, Bitcoin has remained the most popular and largest cryptocurrency in terms of market cap in the world. Bitcoin’s popularity has contributed significantly to the release of thousands of other cryptocurrencies, called “altcoins.” While the crypto market was originally hegemonic, today’s landscape features countless altcoins.Bitcoin ControversyBitcoin has been extremely controversial since its original launch. Given its mercurial nature, Bitcoin has been criticized for its use in illegal transactions and money laundering.As its impossible to trace, these attributes make Bitcoin the ideal vehicle for illicit behavior. Moreover, critics point to its high electricity consumption for mining, rampant price volatility, and thefts from exchanges. Bitcoin has been seen as a speculative bubble given its lack of oversight. The crypto has weathered multiple collapses and survived over a decade so far. Unlike its launch back in 2009, Bitcoin today is viewed far differently and is much more accepted by merchants and other entities.
Bitcoin is the world’s first digital currency that was created in 2009 by a mysterious entity named Satoshi Nakamoto. As a digital currency or cryptocurrency, Bitcoin operates without a central bank or single administrator. Instead, Bitcoin can be sent via a Peer-to-Peer (P2P) networking, devoid of intermediaries.Bitcoins are not issued or backed by any governments or banks, and Bitcoin is not considered to be legal tender, although they do have status as an acknowledged transfer of value in some jurisdictions. Rather than composing a physical currency, Bitcoins are pieces of code that can be sent and received across a kind of distributed ledger network called a blockchain. Transactions on the Bitcoin network are confirmed by a network of computers (or nodes) that solve a series of complex equations. This process is called mining. In exchange for mining, the computers receive rewards in the form of new Bitcoins. Mining grows increasingly difficult over time, and the rewards get smaller and smaller. There is a total of 21 million Bitcoins. As of May 2020, there are 18.3 million Bitcoins in circulation. This number changes approximately every 10 minutes when new blocks are mined. Presently, each new block adds 12.5 bitcoins into circulation.Since its inception, Bitcoin has remained the most popular and largest cryptocurrency in terms of market cap in the world. Bitcoin’s popularity has contributed significantly to the release of thousands of other cryptocurrencies, called “altcoins.” While the crypto market was originally hegemonic, today’s landscape features countless altcoins.Bitcoin ControversyBitcoin has been extremely controversial since its original launch. Given its mercurial nature, Bitcoin has been criticized for its use in illegal transactions and money laundering.As its impossible to trace, these attributes make Bitcoin the ideal vehicle for illicit behavior. Moreover, critics point to its high electricity consumption for mining, rampant price volatility, and thefts from exchanges. Bitcoin has been seen as a speculative bubble given its lack of oversight. The crypto has weathered multiple collapses and survived over a decade so far. Unlike its launch back in 2009, Bitcoin today is viewed far differently and is much more accepted by merchants and other entities.
Read this Term, Ethereum, and most other digital assets struggled to hold their value.
When choosing assets to invest in during the bear market, look for strong fundamentals. The good news is that these projects are easier to spot when there is less noise. Those with a strong community also have an improved chance of outperforming the market, although it’s worth noting that it can be beneficial to plan for the longer term – as it’s difficult to predict how long you’ll be waiting for the market to pick up.
The Benefits of DeFi Staking and Borrowing
While stablecoin diversification and picking out the right assets to buy into are strong strategies for conquering bear markets, it’s also worth considering the benefits of staking across Layer-1 networks and the DeFi ecosystem. Today, there are many options for earning yield from staking tokens. If you believe in an asset, staking is a great way to gain exposure and generate passive income, as well as generating support for its price.
Besides staking, DeFi provides many other opportunities to generate profits. Many users opt to deposit their capital as collateral in order to take out loans and make the most of prolonged downturns. DeFi makes it incredibly easy to borrow capital, but it should be noted this is only recommended for more experienced users.
Of all the DeFi ecosystems in crypto today, Ethereum’s is by far the most developed and robust, but other networks like Solana, Avalanche, Terra, and Fantom offer an abundance of staking options, as well as significantly lower fees for those with smaller portfolios.
Summing Up
Having a strategy for even the worst cases can help you ensure that you are well-equipped to come out on top even when times get tough.
It’s often said that the most important way to win in crypto is to “survive”, and this is something you should always keep in mind. Avoid going outside of your areas of expertise by taking up leverage if you’re not an expert, and resist the temptation to over-trade.
If markets turn south, losing interest can equal missing out on life-changing opportunities. Many of the world’s most successful crypto traders and investors are those who weathered the bear markets and stuck around when most others lost hope. If crypto lives up to its potential, the most active participants should reap the rewards for years to come.