Since January 1st, 2021, a sustained decline in BTC/USD performance has coincided with the underperformance of many more traditional stocks—with tech stocks heavily impacted.However, with total cryptocurrency market capitalization tumbling from $3 trillion to just under $1tn in the space of eight months through 2022, this decline is indicative of a so-called "crypto winter." But what does this term mean? And how can you keep your portfolio protected from a hibernating market?

What Is "Crypto Winter"?

Crypto winter is a term coined to describe the recurring trend of negative or slow growth, which generally happens towards the end of bitcoin's pre-programmed halving cycle—an event that halves the volume of BTC awarded to miners as a means of protecting the scarcity of the coin.

Graph from CoinGecko showing bitcoin's price chart

Bitcoin's most recent halving took place in May 2020 and saw the 12.5 BTC awarded to miners for every block they successfully mine fall to 6.25. This event follows similar occurrences which took place in 2016 and 2012. In 2024, bitcoin's next halving event will occur, sending the volume of BTC awarded to miners to 3.125.

So, why is this so important? Well, since its inception, Bitcoin has remained the most dominant cryptocurrency throughout the landscape by some margin, meaning that its cyclical framework has influenced the price of other assets. Until an altcoin has the power to make a sustainable challenge to BTC's dominance, these halving events will likely continue to influence market prices.

CoinMarketCap chart showing major cryptoassets by % of total market cap

As PlanB's BTC Relative Strength Index illustrates, bitcoin's halving events have created a trend whereby the coin, along with the wider market, experiences blistering price rallies before a harsh correction and a long-term period of slow and negative growth. As the chart shows, bitcoin's current "relative strength" falls in line with the periods of weakness that began in 2014 and 2018—with 2022 set to be the third iteration of this trend.

With bitcoin's next halving event scheduled for some time in 2024, we may need to brace ourselves for a relatively long wait until we see the rallies of 2021 reemerge. But what can bitcoin investors do to protect portfolios from such a sustained downturn?

1. Seek Solace in Winter-Proof Assets

The cryptocurrency landscape is harsh and unforgiving, especially for small-cap coins. Many of the major cryptocurrencies we saw gaining lots of traction in the wake of 2016's halving event have struggled to retain their popularity today.

Looking at the historical snapshot of assets ranked by market capitalization in December 2017 below, alongside the major fixtures of BTC and ETH, just XRP and Cardano have retained their position in the top 10—and even these assets have lost ground to new projects, dropping to 7th and 8th position respectively.

Historical snapshot of cryptocurrencies ranked by market capitalization

What this means is that crypto winter is a time when weaker or unsustainable projects struggle as investors begin to sell up.

With this in mind, large-cap cryptocurrencies like BTC and ETH have proven time and again that they're capable of standing strong as volumes fall, making it a potentially worthwhile choice to "HODL" your stronger assets. Although nothing is guaranteed in the volatile world of crypto, these mainstays have shown the bouncebackability that tells us they're likely to thrive when skies once again clear.

2. Embrace High-Quality Projects

Not everyone believes that crypto winter is a bad thing. In fact, Ethereum co-founder, Vitalik Buterin, has said that he welcomes a crypto winter, stating that periods of slow growth are great for whittling out weak projects and providing developers with the time to create high-quality new projects that investors can embrace. Talking to Markets Insider, Buterin said:

The winters are the time when a lot of those applications fall away, and you can see which projects are actually long-term sustainable, like both in their models and in their teams and their people.

This mantra can expand into the world of investment, and you can use it as a time to look deeper into the assets you hold and stay on the lookout for up-and-coming crypto coins with the levels of sustainability that you can really buy into.

3. Be Wary of Further Price Crashes…

It's a good idea to only ever invest what you can afford to lose. This is particularly pertinent at a time when most of the world is struggling to overcome high inflation rates and cost-of-living squeezes that are keeping many of us hard up for money.

If you buy crypto in the midst of crypto winter, you must be prepared to see its value tumble. Many leading exchanges are facing staff lay-offs as trading volumes fall, and negative sentiment can heavily impact the performance of portfolios.

4. …But Don't be Afraid to Buy Any Dips

Should bitcoin's cyclical framework continue its trend, we may see fresh periods of growth and price accumulation following the coin's next halving event in 2024—however, this is dependent on BTC retaining its market dominance and following existing patterns that could quickly change.

This means that current prices can be presented as discounts with the long-term future in mind. Of course, it's never a good idea to try to catch a knife or predict a bottom, but buying into dips piece by piece could be an excellent way of accumulating crypto—should you feel confident that a market recovery is on the way.

In Crypto Winter, Always Account for Volatility

As always, the cryptocurrency market is highly volatile and sentiment-driven. Things can change awfully quickly when it comes to crypto. With this in mind, we must avoid the risk of placing more than we can afford into digital currencies. Instead, continue to research your options, build a budget, and only invest what you're able to lose.

​The information on this website does not constitute financial advice, investment advice, or trading advice, and should not be considered as such. MakeUseOf does not advise on any trading or investing matters and does not advise that any particular cryptocurrency should be bought or sold. Always conduct your own due diligence and consult a licensed financial adviser for investment advice.