There's an old saying that "cash is king," but if it's in a bank account, or in the case of cryptocurrencies - a wallet, it's getting smaller every day due to inflation. This is especially true now that inflation in the United States has broken a 40-year record. While the Dollar cost Averaging (DCA) strategy allows investors to minimize the impact of volatility by buying volatile assets over time intervals, inflation can still cause the value of the target asset to decline over time.

For example, Solana (SOL) has a preset agreed inflation rate of 8%, and if the benefits are not generated by farming or utilizing decentralized finance (DeFi), then one's assets will depreciate by 8% per year.

However, even though the U.S. Dollar Index (DXY) is up 17.3% in a year, the hope of decent returns in a bull market is still driving investors to participate in volatile assets as of July 13, 2022.

How to Deal with the Cryptocurrency Winter

In the upcoming "Blockchain Adoption and Use Cases: Finding Solutions in Surprising Ways" report, Cointelegraph Research will dig deeper into the different solutions that can help defend against bear market inflation.

Crypto winter is a time when anxiety, panic and depression begin to burden investors. However, many crypto cycles have proven that true value capture can be achieved during bear markets. For many people, the current view is that "buy and hold" combined with DCA could be one of the best investment strategies during the crypto winter.

In most cases, when the macro environment improves, investors abandon direct investments and accumulate funds to buy assets. However, market timing is challenging and only feasible for active daily traders. By contrast, ordinary retail investors take higher risks and are more vulnerable to rapid market changes.

Among the various disasters in the cryptocurrency market, placing assets at pledge nodes on the chain, locking up pools of liquidity, or generating income through a centralized exchange comes with significant risk. Given these uncertainties, the big question remains whether it is best to buy and hold.

Anchor Protocol, Celsius, and other income platforms have recently demonstrated that too-good-to-be-true gains can be replaced by a wave of clearing if the basis for income generation is not supported by a tocoonomics model or the platform's investment decisions. Generating returns on idle digital assets through centralized or decentralized financial agreements, with strong risk management, liquidity incentives, and less aggressive yield products, may be the least risky way to combat inflation.

DeFi and CeFi

Both DeFi and Centralized Finance (CeFi) protocols can provide different levels of yield for the same digital assets. With DeFi protocols, lock-in risk that generates marginal returns is another major factor as it limits the ability of investors to react quickly to adverse changes in the market. In addition, strategies can introduce additional risks. For example, Lido liquidity pledges using stETH derivative contracts are easily affected by price differences with the underlying asset.

While CeFi such as Gemini and Coinbase have demonstrated careful and transparent management of user money, unlike many other such platforms, the revenue offerings from digital assets are paltry. While staying within the risk management framework without taking aggressive risks with users' money is beneficial, the returns are relatively low.

While maintaining purchase discipline and conducting research within the DCA framework is critical, finding a low-risk solution that generates substantial revenue can be tricky. At the same time, the new cryptocurrency market cycle will bring developments that will hopefully lead to novel solutions that are attractive in terms of both risk and reward. Cointelegraph Research evaluates multiple platforms and assesses the sustainability of current DeFi and CeFi earnings in an upcoming report.