TMCnet Feature
August 10, 2022

What's a Crypto Winter and How Can You Prepare?

If you're familiar with history or economics, you'll understand that after economic booms come recessions. They will first start to show themselves as companies lay off people. Then, unstable and developing businesses will begin to close their doors. These tend to be due to a lack of money flowing through the economy. 

Unfortunately, recessions can also cause crypto winters. While no one can predict economic markets accurately, it is always good to plan for the worst-case scenario, especially if you are a business owner. So here's what you need to know about crypto winters and how to prepare for them. 

What's a Crypto Winter?

Crypto winters are when cryptocurrency prices fall and stay low for an extended period. For example, Bitcoin, or BTC, experienced a crypto winter from 2017 to 2018 when the price dropped 80% from all-time highs. When paired with a stock market crash, crypto winters can be disastrous for businesses. That's especially true since it is nearly impossible to produce an accurate prediction of the markets. 

As the stock market has begun to take a downturn, people are concerned about the stock market crash. BTC is experiencing negative trends with a record high of $69,000 per coin in November 2021, which could drop significantly to less than $20,000 per coin. Meanwhile, stable cryptos, such as Tether or USDT, will remain at about $1 per coin. Therefore, as a small business owner, you must know how to react to this situation. 

What Does This Mean for Businesses?

For businesses, a lack of people who want to trade BTC USDT means that there will be less crypto activity in their virtual stores, which could mean a lack of income. In addition, entirely crypto-based companies will need to reduce their costs, which could mean cutting back on active employees.

A recession can put freezes on the job market and staff cuts for many businesses, even if they only perform some transactions with crypto. That's because the prices can fluctuate wildly and affect the cost of these transactions. However, a crypto winter shouldn't affect companies that don't accept or otherwise use crypto. 

What Does This Mean for Investors?

If your business only uses crypto as an investment strategy, you should be fine if you have a broad portfolio. Since many smaller companies invest extra funds to grow these profits, you'll probably already have a well-diversified portfolio and solid investment strategy.

You may have to rebalance your portfolio if the prices of your crypto have changed drastically, but other than that, you should be fine. Remember, even though the prices are low, you should only have up to 5% of your crypto portfolio and never put in more than you are willing to lose. Now is also not the best time to purchase crypto. It is better to wait until the future looks better for the currency.

Crypto winters are not the best for a business based on this type of currency. It could result in employers needing to reduce their staff. However, if you use it to grow your business' profits and have a diverse portfolio, you should be fine should one come. 

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