Industry leaders share advice on lessons to find out during this downturn – common themes include minimizing risk investment and reigning in greed.
The expression hindsight is 20/20 involves mind when pondering the crypto crash. Since the November 2021 peak, the full crypto Market Cap has fallen about 70% in value, and crypto investors, irrespective of how early they bought, are feeling the pinch.
Verena Ross, the Chair of the eu Securities and Markets Authority (ESMA,) said investors should consider the crash a “cautionary lesson” in putting money into unregulated assets, in line with the FT.
“I think there’s a true question about whether many of those [crypto assets] will survive . . . I hope that a number of these investors will see this and can take a cautionary lesson a minimum of to give some thought to what proportion of their money they invest in these styles of assets.”
Ross known that the ESMA had warned retail investors earlier this year of the severe risks committed cryptocurrency investing, implying that financial losses thanks to the downturn are self-determined.
While there’s a part of truth thereto, there’s also an oversimplification of the matter for several reasons. For one, regulated assets also are trending downwards at this point. And a major appeal of digital asset investing lies in its anti-authority spirit – which are some things that transcends short-term price action.
Nonetheless, the value remains the first yardstick to live success or failure, and even the foremost staunch crypto advocates are feeling the pain where it hurts – in their portfolio tracker.
To draw edification on the matter, CryptoSlate reached bent on several industry figures to seek out out what lessons will be learned.
Industry leaders share their thoughts on the crypto crash
Russell Starr, the CEO of crypto Exchange Traded Products (ETP) firm Valour, warned that “get-rich-quick schemes” don’t work. He expanded on this by saying users should approach crypto investing more maturely, especially when performing appropriate due diligence.
All markets move in cycles, and basing an investment strategy on “optimistic growth projections” is “doomed to fail” at some point, said Starr. That being so, the recent crash hammered home the importance of recognizing that crypto markets, like all markets, move in cycles.
“The recent downturn will function a wakeup call to several investors – that crypto, despite having ample runway and room to grow, continues to be subject to the identical cyclical market conditions as all other assets.”
Starr signed off by saying the key lesson to require on board is to reign in risk acceptance and be satisfied with “realistic sustainable yields.”
Garry Krugljakow, the founder and CEO of GOGO Protocol and 0VIX, had an analogous message to Starr, saying the expectation that markets will continue climbing higher forever is mistaken.
Krugljakow also known that rapidly evolving market variables often fail to account for market health – catching investors off guard. Fleshing this out with an example, Krugljakow said, within the case of DeFi, available models (for risk assessment and health analysis) don’t often evaluate a user’s “credit worthiness,” which might result in overexposure.
“If we narrow the scope to DeFi, for example, we all know that the health and stability of the lending system depends on the collateral value that borrowers provide, but, while risk assessment related to asset price fluctuations has improved, the models often fail to handle users’ ability to lend and Borrow multiple assets.”
The macroeconomic picture
Chiming in with investor analysis, Michael Rosmer, the CEO and co-founder of DeFiYield, said timing the market “is usually a fruitless endeavor.”
Reiterating the adage that past performance doesn’t predict future movements, Rosmer realized that, unlike previous cycles, the recent securities industry didn’t end with a blow-off top. Thus giving investors looking ahead to this a false sense of security. The lesson here is to line aside ingrained market expectations.
“People also believed that we’d see a blow-off top, because that’s happened in previous cycles. But that thinking fails to grasp that markets behave supported what people are anticipating and preparing for, so often what people expect to happen isn’t likely to happen.”
Bringing in inflation, Rosmer commented that investors incorrectly assumed rising Inflation equated to rising asset prices. However, as we are witnessing now, rising inflation led to hawkish moves from central banks and poor asset price performance.
In rounding off his tips, Rosmer advised investors to bear in mind of price euphoria, as he considers it a number one indicator of a very hot market. During such times, the smart play would be to lower one’s risk exposure.
“Learning to reverse the cycles and think risk on when the market is down and climbing, risk off when the market is up and in danger of declining, and spot the high correlation with the final stock exchange.”
Bitcoin is that the leading cryptocurrency for a reason
Bitcoin has generally fared better than the alts, losing about 70% of its value from its November 2021 all-time high (ATH). In contrast, significant large-cap losers include Solana and Algorand, down 87% and 92% from ATHs, respectively.
Regarding lessons to heed, Max Keiser said, “there were no new lessons,” within the sense that investors should have already learned from previous crashes. However, he forewarned that unscrupulous individuals will still target “a new generation of naive, greedy, suckers.”
For this reason, Keiser doesn’t endorse complex, high-yielding DeFi products or alts normally. Instead, the sole thanks to “escape the madness” and protect yourself is to stay with self-custody Bitcoin and hodl, said Keiser.
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