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Bear With Me: 3 Ways To Capitalize During the Crypto Winter

Investments should be a careful mix of due diligence and risk aversion.

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From a young age, we are taught that capital markets have the power to make us rich. Whether it's from your first economics professor or your uncle who is an accountant, we've all heard countless times that compounding is king and time in the market is the most valuable asset you can buy. To be clear, that math does add up. History shows that the market, as measured by the S&P 500, has an annual return of approximately 10%. That said, it never really feels like this is what people are doing.

Markets are as flippant and volatile as they've ever been on the back of greater access to consumer finance products and the rise of social media platforms as mediums for information sharing. GameStop, AMC, Dogecoin and Shiba Inu are great examples of how market sentiment isn't something to underestimate and, in most cases, shows that you might be better off doing as they say and not as they do. Time in the market may be "king," but timing the market (within reason) is equally important.

Here are three things to keep in mind to capitalize on your financial investments.

1. Do. Your. Research.

One of the biggest obstacles for cryptocurrency markets is the notion that they're purposefully convoluted and confusing. To this day, the average person still can't explain how a blockchain works or how an economy running on cryptocurrency will lead to ultimate financial inclusion. Instead, narratives about how blockchain and crypto enable money laundering and financial exploitation saturate the internet. What's more, the remarks of regulators around the globe often discourage the average person from diving into the technology, indirectly forcing them out of the market because they don't understand it, and things that we don't understand are scary.

While it's important to understand what you invest in, there are numerous instances in which the average person takes a passive approach and follows the crowd. When was the last time you read the terms and services agreement before hitting "Accept"? That approach is how most people move even with investing. They're quick to dump their hard-earned money into the most popular and discussed stocks.

However, very few people have the skill set to value a company. Terms like tender offers, stock splits and market capitalization live outside the minds of the vast majority of market participants. This isn't to say that you should do the same with speculative cryptocurrency investments — I'm actually proposing the opposite. Take the time to learn about blockchain and cryptocurrency's main value propositions and take a little more to better see the arbitrary inconsistencies within financial markets. By doing so, you might just unlock your next big blessing.

Related: How To Start Investing

2. Diversify, Diversify, Diversify

The world of financial markets is unbelievably vast. Stocks, bonds, foreign exchange, ETFs and cryptocurrency are just a few ways for investors to take views and attempt to capture value. Part of solving the puzzle that is financial markets is understanding how to use the tools you have in your toolbox and ensuring that your toolbox has the best tools in it. For instance, to invest in cryptocurrency, you don't necessarily have to purchase individual tokens. You could get crypto exposure through the stock market by investing in Coinbase or one of the other companies that IPOs. Or you could invest in any number of ETFs that allow you to diversify your holdings automatically.

It's critical to understand that not all coins are created equal. Of course, you have your mainstay cryptocurrencies: Bitcoin and Ethereum, but there are thousands of alternative coins (altcoins) that you could invest in. Understanding the difference between infrastructural coins and decentralized application (dApp) coins is critical as well, given that the risk profiles of these investments are quite different. Infrastructural coins are a bet on technology's ability to attract builders of hopefully successful applications, while dApp coins are levered to the success of that individual application's success. Understanding these dynamics helps smart investors balance risk more effectively.

Related: Cryptocurrency Millionaires Are Diversifying Into Property. You Should Be Too.

3. Buy low. Sell high.

It sounds simple, but this staple rule of financial markets is commonly broken.

The market gets out of hand every now and then, and quantitative tightening occurs. When this happens, frothy markets correct themselves and prices start to reflect that. Unfortunately, there are always investors who can't stomach the long-term volatility and start to divest out of assets prematurely. Groupthink exacerbates this issue, and oftentimes those traders bring their friends along with them. We're generally taught not to prey on the misfortune of others, but this behavior often creates the best opportunities for those who are patient and willing to weather the volatility. The market can sometimes be like a rubberband where things swing from overvalued to undervalued in an instant. Taking advantage of these swings can set you up to capture even more value than before.

Related: 5 Ways to Maintain and Expand Your Wealth During the Cryptocurrency Dip

To sum up

Capital markets serve as the ultimate mechanism for value to exchange hands between borrowers and savers. As an investor, your job is to ensure that you have the capital to deploy when opportunities arise and that you also part ways with money when advantageous exits arise. At the end of the day, the main takeaway here is that very few investors conduct the necessary due diligence required to make the most educated investment decisions. While reiterating these rules may not rectify that fact, it might inspire a couple of investors to take advantage of the opportunities their counterparts leave them.

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