It’s true: the markets are bleeding right now in crypto, and I think it’s time to consider your plan for a true bear market, not one like the 4-month bear market this past summer, but a true multi-year crypto winter. Personally, I haven’t lived through a crypto winter yet, but I have friends who have and I’ve prepared myself for it already (like you should).

So the million dollar question: when is the bear really starting?

Oh you were asking me?

Well, let’s get into that today…

The short answer to your question is: “I don’t know.”

But I know you didn’t come here just for me to say that. I don’t know exactly when it will happen, and if anyone claims to know, they are full of you-know-what. I personally believe it is imminent, probably within the next few months. But a lot of people have said that, so let me explain both what I am doing now and why I think the bear market is coming. If you like this story, a follow and a clap would be greatly appreciated. I also have some more crypto-winter-themed stories I could write, so let me know if you found this useful.

Preparing for crypto winter

I was hoping to get this published before I had sold everything, but that didn’t happen. I have personally sold all of my crypto and now have most of those profits in stablecoins earning a little interest on the tail end of this market before I pull it out to cash. Things in crypto develop fast, and I went from selling about 40% to secure enough profits to be solid in my personal life/prepare for some things in my near future to 100% sold in less than a week.

At the end of the day, I exited at roughly 3x the amount of cash I invested, from when I started in May of 2021 which is, by all measures, pretty awesome, especially considering I made a lot of mistakes along the way in my first crypto investing journey.

Obligatory GoT reference…

Wondering if you should sell? Allow me to help.

If you have assets still in the market, let me help you figure out how much you should sell, if anything. First:

How much do you have invested total and how much is that worth to you? For instance, $1,000 to someone like me who makes a decent income in a major metro area in the US is not that much money (it’s not totally insignificant, but it’s not bank-breaking). But for someone living in a much lower-income/lower cost-of-living situation, $1,000 might be a lot more meaningful to them.

If the amount you have invested is relatively insignificant to you, then it’s probably not even worth worrying about: either decide you want to sell it all or keep it all. You can skip past the rest of this section if you like. If the amount you have invested is significant to you, then continue.

Is there anything you need money for in the short term (less than a year) that you’re relying on your crypto holdings to cover, or put another way, would you be put into financial stress if you didn’t take any profit in the short term? And if so, how much?

You should probably look to sell (sooner than later) enough to cover whatever you answered for this question. For instance, I have a few grand (less than $10k, more than $5k) on a credit card currently at 0% interest which I used, in part, to finance additional crypto investments over the last summer. I wouldn’t recommend this to most, but I had a lot of conviction and honestly I would have been okay if I needed to carry that balance over to another card and pay it off over time. So I knew I wanted to take out at least enough to cover that after paying taxes on my gains. Do a similar calculation for yourself, and don’t forget to factor in taxes. Let’s continue.

Are there opportunities you might have on the near horizon that you’d miss out on if you couldn’t sell any of your assets? Or would you feel better if you had a cash cushion to be able to take advantage of an opportunity if it presented itself to you? And if so, how much money would you need available for this?

Broadening from the first question, if there are any opportunities you want to be prepared for that your crypto assets would be very helpful in paying for, you may want to sell more of your assets to be ready for this as well. Personally, I have some opportunities coming up in my life that I wanted cash available for, so I sold more of my crypto in order to be ready for that as well.

Finally, if you have anything left after that, decide if the amount you have right now, in cash value (minus taxes on gains), is more valuable to you as cash today or as longer-term investments.

Assuming you invested in quality assets, you’re probably in for at least another couple of years before things return to 2021’s peak, so if you decide to take the plunge, be prepared to wait that long. Ultimately I determined that what I had left after accounting for the first two parts of this equation was more valuable to me as cash, so I sold. You can read about my original plan in this story I wrote back in 2021, and though I definitely did not reach my goal, I made significant progress towards it.

What’s your plan for crypto winter? I’d love to hear what you’re planning on doing or if you even think there is a crypto winter around the corner. Drop it in the comments, and you’ll get a personal response from me. Maybe consider following me/DNC while you’re at it? Thanks!

Why a crypto winter is coming

Every market in the world has three major players: consumers, producers, and finally investors. In most markets, a basic consumer market develops first — think people needing to purchase food, shelter, tools, entertainment, etc— then people step up to become the producers and supply those needs, and eventually investors develop in order to provide much-needed capital for enterprise to scale and the economy to grow. In a healthy economy, all three of these players are complementary to each other and they all help each other in many ways.

Let’s apply that idea to the crypto market. We all know there is ample money in the investment side of things, and there is actually quite a bit of money in the producer side of things as well (think of all the DAOs, NFT creators, DeFi Developers, and of course the actual main blockchain teams/contributors creating the major blockchains that everyone is using). However, it’s much more difficult to define and determine the scale of consumer money in this market.

The crypto market right now…

My thesis is that the crypto market of 2020/2021 was built on a consumer market of retail investors, and the primary products that were being bought/sold were yield and governance tokens. Basically, you’re a crypto consumer if you did one of the following things (non-inclusive of course, these are just examples): bought an NFT, provided liquidity on a DEX, used a yield optimizer or auto farmer, bought governance tokens in order to participate in governance votes, bought tokens in a DAO, etc.

The thing is, there’s very little *real* consumer money in crypto: people aren’t using blockchains to buy their groceries or pay their rent, etc. There are also very few crypto-native consumer products: the closest things are the relatively new crop of so-called “Play to Earn” blockchain games, most of which are still billing themselves, in some form or another, as an investment vehicle rather than a consumer product.

Astute readers will already see why this is a problem: your consumer-base, which is one of the core pillars of a healthy economy, doesn’t even know they’re actually consumers. And that when you consume something, you are inherently paying money for that thing which means you are spending money, not earning it. So retail investors think they’re saavy crypto investors finding great yield opportunities, but in reality, they’re actually consumers paying money in this yield chase that will only ever end up with them losing money overall. Meanwhile the product teams creating those DeFi products have made their money and will be okay *when*(not if) their project falls apart.

A comparison for reference

Anyone who’s even a little bit educated about economics and the market knows that you can’t have a multi-hundred-billion-$$ Financial system (DeFi) without a consumer economy underpinning it that’s at least a few times larger. Let me give you an example — the US Economy (Source, and Source):

In the Fidelity source linked above, their data of different industries has a total market cap of $63T (it’s unclear if this is including small businesses as well, since the other source linked pins the total US stock market at about $50T). Of that $63T, only $8.9T of that is in financial services companies. That would make the aggregate market cap of all non-financial services companies roughly 6.11x larger than the financial services sector.

Now of course, this example is not perfect, as stocks don’t translate 1:1 with the crypto market, and there are other economies in the world that might have different break-downs. But the point stands: the US economy is at least a 6/1 consumer/finance ratio whereas the crypto market is a very small fraction of 1/1.

The crypto market *needs*, *desperately needs* a consumer segment for long-term sustainability. That is why we are heading into a crypto winter, and it will probably take a few years for much of a consumer economy to begin to blossom and for the collective pain of this upcoming mega-crash to begin to heal. This crypto winter will also help burn away a lot of the trash and scammers in crypto as retail investors will become far more careful (and hopefully savvy but I won’t hold my breath).

One thing is for certain: on the other side of this crypto winter, the market will be a lot healthier, and hopefully will have a large consumer market to build growth on top of.

As I am not a registered fiduciary agent, none of my advice is legally binding in any way, and choosing to follow or not follow it is a responsibility that lies squarely on your shoulders. Crypto is a volatile market, and a significant crash in values is a normal event in this space, just as a significant increase in values is. Treat the market as an irrational actor (which is what it is), buy the proverbial dip when possible, take some profits along the way, and enjoy the ride.