Will Crypto Winter Hurt My IRA?

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Contributor, Benzinga
December 23, 2022

During the COVID-19 pandemic, cryptocurrency prices soared to unprecedented levels, finally peaking in November 2021. Bitcoin topped $69,000; Ethereum soared over $4,800. 

Then, 2022 hit: inflation and interest rates ballooned, and the dreaded “crypto winter” set in. By mid-2022, crypto markets had declined 60%.

Altogether, the crypto markets drew down over half their value in about one year’s time.. As an emerging asset class, cryptocurrency is known for both outsized returns and white-knuckle volatility. For short-term investors, crypto winter can mean locking in losses; for long-term-minded investors, known online as “holders,” it can present a tremendous opportunity.  

What is Crypto Winter?

Think of a crypto winter as the bear market for digital currencies.. It occurs when the broader crypto market experiences a substantial, lengthy downturn in prices. For stocks, a 20% downturn might typically be seen as a bear market. In crypto, due to its unprecedented price action, cooldowns are also much more dramatic; typically, Bitcoin has dropped over 75%, with altcoins receding deeper.

The last crypto winter occurred between January 2018 and December 2020, when Bitcoin prices plunged nearly 80%. Throughout 2021, prices climbed again amid periods of volatility, finally peaking in November before dropping again. 

Given the current downtrend since November 2021, it appears clear that another winter has arrived.  

What is Causing the Crypto Winter?

The crypto dip of 2022 may be attributed to several factors, but the underlying theme is investor risk reduction. 

As the pandemic ended, consumers began to spend more, while supply chains remained tangled and inflation munched on wallets. n the U.S. and subsequently, globally, rising interest rates forced borrowing costs like mortgages and corporate credit to rise. 

To escape the turmoil wrought in the financial markets, investors fled riskier assets like cryptocurrencies for safer securities like bonds and gold. It didn’t help when the Terra Luna ecosystem, including its UST stablecoin, collapsed, dispersing holdings, while the Celsius and Voyager yield and borrowing platforms also went under. 

By this time, the foundation for the current crypto winter had already been laid. 

Does Crypto Winter Impact Every Cryptocurrency?

There’s no formal definition for exactly what a crypto winter looks like. However, most experts agree that it generally affects a broad range of cryptocurrencies for extended periods. Historically, crypto winters have begun with larger coins like Bitcoin and Ethereum, bleeding into smaller coins from there. Top to bottom, these periods tend to last anywhere from approximately one year to over 400 days.

How is Crypto Winter Different from a Bear Market?

Crypto winters and bear markets are similar – and may occur at the same time – but they’re not exactly the same.

Using the stock market as an example, a bear market typically occurs when an individual stock or broader index, such as the S&P 500 or Nasdaq exchange, declines at least 20% from recent or year-to-date highs. 

By contrast, a crypto winter appears in the cryptocurrency markets. As there’s no official definition for what constitutes a crypto winter, there’s no set metric for how many cryptocurrencies have to crash (or how far) to declare a market dip; however, this period is typically characterized by top crypto assets and the vast majority of altcoins experience significant downtrends for periods of up to a year or more.

Another substantial difference is that stock prices are decided by a combination of business fundamentals, investor sentiments and market forces. In contrast, crypto prices are determined primarily by investor and user sentiment and coin popularity. 

In both cases, a broader dip can lead to widespread losses for investors, big and small. 

5 Tips for How to Navigate Crypto Winter with an IRA

Depending on who you ask,  using a crypto strategy in your IRA can enhance your efforts in saving for the future, or hinder your retirement prospects.. If you’re buying crypto during the dip, here’s what to know. 

Diversify Your Portfolio

The key to buying crypto in your IRA is diversifying your portfolio across cryptocurrencies and more traditional investments. If you invest too heavily in a single asset or asset class, you risk concentrated losses during a crash. 

Be Committed to the Long Haul

It’s in the name – of your IRA is designed for retirement, which is a long-term investment. If you’re not near retirement, don’t spend too much time worrying about where the market is today. 

By focusing on your long-term crypto strategies, investments experiencing corrections have time to recover and thrive.

Don’t Invest More Than You Can Afford to Lose

Crypto is a relatively new investment; Bitcoin was created in 2009, and many more coins and tokens subsequently followed.The asset class has since become known for outsized returns and considerable volatility. As such, you shouldn’t invest more than you can reasonably afford to lose into crypto – even in your IRA. 

Don’t Believe Everything You Read

Online communities and forums are exciting places to talk about crypto strategies with like-minded individuals. However, they’re also comprised primarily of hobbyists, who range from well-informed to merely well-opinionated. 

Beyond the accuracy of each person’s knowledge, crypto hobbyists on public forums don’t know your personal financial situation.  Investors should seek advice from a competent financial advisor or CPA to discuss your personal financial goals and investment strategies.

Consider the Impact of Buying the Dip

While no one can predict the duration of crypto winter, this market – just like the stock market – has frozen over before. If you believe the dip is just that, buying crypto now could mean higher gains down the road. 

However, understand there are no guarantees; should crypto markets recover, buying the dip means more coins for your dollar than at higher prices, and reduces your average cost per coin (or token), a potentially powerful strategy.

Will Crypto Winter Hurt my IRA?

Crypto is an unusually divisive financial asset. Some people believe it’s the future of currency and investing; others claim it’s a bubble that seduced otherwise reasonable investors.  Thankfully, history suggests that bull and bear cycles in crypto are normal, as frigid drawdowns eventually give way to recovery and potential new highs.



What happens during a crypto winter?


During a crypto winter, the prices of various cryptos plunge dramatically and remain there for an extended period of time. Themove may result in losses for investors, but has historically also presented significant opportunity.


When will crypto winter end?


It’s impossible to accurately predict when the crypto winter will end. The last crypto winter took approximately one year (from December 2017  to December 2018) to find a bottom, and until Fall of 2020 before the next major run up took place.


What time is best to buy crypto?


As with other assets, buying crypto to experience a profit is best done during a drawdown or dip. However, it’s impossible to determine with precision the trough of a crypto dip until it’s already passed. Dollar-cost averaging has been found by many to be a generally reliable strategy.