3 Tips to Survive the Crypto Winter and Become a Better Long-Term Investor

Just when it looked like the crypto market was finally stabilizing after a steep sell-off earlier in the year, along came the overnight meltdown of cryptocurrency exchange FTX and a wave of panic selling by crypto investors. Understandably, many investors are now concerned about the future of their crypto portfolios, and some are now looking to exit the market entirely in search of less risky assets.

Things could look precarious in the short term, especially when some of your favorite cryptos may have been knocked down 20% or more in just one week. However, now is not the time to abandon the type of long-term thinking that is the key to unlocking future wealth. Here are three steps you can take to focus on the long run and become a better overall crypto investor.

Focus on large-cap cryptos

Just two cryptocurrencies — Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) — account for more than one-half of the total crypto market capitalization. Bitcoin has a market cap of $320 billion and Ethereum has a market cap of $148 billion, while the total value of the crypto market as a whole is $833 billion. That’s why some investors refer to Bitcoin and Ethereum as “blue-chip cryptos.” On a relative basis, these two cryptocurrencies are less risky and less volatile than the rest of the crypto market.

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Of course, these two crypto blue chips do not offer anywhere near the safety and risk protection of stock market blue chips, but they do come with a certain margin of safety. Bitcoin, for example, has been around since 2009 and Ethereum has been around since 2015. They have endured sharp market downturns before, and have bounced back each time. In contrast, newer cryptocurrencies launched during the last bull market simply don’t have a track record of bouncing back, so we really don’t know what will happen this time around.

Diversify

In the crypto world, some investors like to refer to themselves as “Bitcoin maximalists” or “Ethereum maximalists.” This is their way of saying that they only invest in a single cryptocurrency and that they have maxed out their portfolio on that one crypto name. Every other crypto, they say, simply can’t offer the same kind of risk-reward upside. This might have been a successful strategy when the crypto market was still very new, but in many ways, this breaks one of the cardinal rules of successful investing: Don’t put all your eggs in one basket.

In other words, diversify, diversify, diversify. Today, there are literally thousands of different cryptocurrencies from which you can choose. Just as the key to a successful stock portfolio is diversification, the key to a successful crypto portfolio is also diversification. If you look at the top 100 cryptocurrencies on CoinMarketCap, for example, it’s possible to divide these cryptos into different baskets. By choosing cryptos from several of these baskets, it’s possible to add some basic diversification to your portfolio.

For example, one crypto basket could include all of the Layer 1 blockchain projects, such as Ethereum, Cardano (CRYPTO: ADA), Solana (CRYPTO: SOL), and Avalanche (CRYPTO: AVAX). These are some of the best-known cryptos with the highest market caps. Other baskets could include stablecoins, gaming and metaverse cryptos, decentralized finance (DeFi) cryptos, and meme coins.

Focus on cryptos with proven utility

Finally, one way to build a long-term investment mindset is by focusing on cryptos that have demonstrated proven utility. In the crypto world, “utility” has a very specific meaning — it refers to blockchain projects that have real-world use cases. For example, Ethereum has very real utility: You can mint and trade non-fungible tokens (NFTs) on different marketplaces. Ethereum also offers smart contracts, decentralized applications, and blockchain-based games.

In contrast, meme coins such as Dogecoin (CRYPTO: DOGE) or Shiba Inu (CRYPTO: SHIB) offer very little utility. Investors buy them because they can skyrocket in value, not because they have any inherent value. So one good rule of thumb would be to avoid meme coins during any market downturn, because they tend to go up only during crypto bull markets.

Avoid market timing

As a final piece of advice, don’t try to time the market. Instead of buying low and selling high, many crypto investors end up buying high and selling low. Put another way, they only get involved in the market when it’s already frothy and speculative, and they cash out once the market has a steep sell-off. They bought Bitcoin when it was trading at $68,000 and are now contemplating getting out of crypto entirely.

Instead of focusing on short-term trading gains, focus on building a long-term mindset. By following the three basic rules above, you can best position yourself for long-term success in the crypto market.

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Dominic Basulto has positions in Bitcoin, Cardano, and Ethereum. The Motley Fool has positions in and recommends Avalanche, Bitcoin, Cardano, Ethereum, and Solana. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.