Don’t let crypto judges profit from your panic

The cryptocurrency industry has certainly experienced a rough year so far, exemplified by Bitcoin losing more than half of its value since the start of 2022. But cyclical volatility is nothing new for crypto, nor a reason for investors to panic.

Looking at recent price history, many say that we are at the beginning of a crypto cycle and that it will soon rise billions of dollars, while others may argue that crypto is dead. In the latter case, I think it is reasonable to wonder if this narrative is orchestrated and why.

Crypto is still essentially an investment with lower liquidity compared to the traditional stock market. Additionally, the total market capitalization is currently approximately $1 trillion, a microscopic fraction of the total investment industry. Combine these two factors and it doesn’t take much to move crypto markets.

There is also no significant regulation of what people can say about crypto in open channels. As a result, some key industry players are making comments on social media that are almost certainly intended to influence the crypto market in an attempt to profit from the resulting volatility.

Conversely, if you are the CEO of a company in the traditional stock market, all communications you send out must comply with the regulations surrounding disclosure. Violating the guidance on forward-looking statements and what you might say to investors, even casually on Twitter, can get you in trouble with the US Securities and Exchange Commission.

Since such oversight doesn’t exist in crypto, you usually won’t see anyone disclosing their holdings if they appear on a financial network. So you have no idea if they have a heavy short position on crypto, such as when they suggest to an audience of millions that “crypto is dead.” Quite possibly they will just create fear, drive the price down, buy at the bottom and then drive it back up.

Alternatively, someone like Elon Musk could randomly mention a cryptocurrency, and the market for it would then go up before likely coming right back down. Until crypto becomes more mainstream, with stricter regulations around disclosure and more available liquidity, we will continue to see wild action as a result of statements from influencers or insiders.

Don’t believe everything you hear

Recognizing this reality, how should investors deal with the inevitable ups and downs? I recommend two main actions.

The first is to make informed decisions and avoid getting caught up in hype. Don’t invest in a cryptocurrency or blockchain because your friends tell you so, or you think the market is bottoming or peaking. Do it because you’ve done the research, read the white papers and appreciate the utility. It’s the same reason you would invest in Coca-Cola, Walmart or McDonald’s – because you believe in their business fundamentals. That mentality needs to become more ingrained in the crypto industry.

Second, don’t take unnecessary risks. Invest only what you can afford to lose and avoid excessive leverage. Put a smaller allocation in crypto and be able to withstand downturns without losing sleep. Because if you get stressed about your investments, you’re likely to make bad decisions, like selling unnecessarily at the bottom. If you have a healthy mind, you are likely to make better choices and set yourself up for success.

Platforms and influencers can also play a role in creating a better crypto investment environment and I believe they have a responsibility to be transparent about the crypto market and how it is moving. This is especially true because they often have insider knowledge that gives them an important edge, while their social media followers tend to lack both context and experience and usually hang on their words.

Crypto industry founders or CEOs probably shouldn’t be giving concrete market guidance either. As we saw with the recent string of high-profile bankruptcies, these executives may have no better idea of ​​what’s going on than the next person.

Unfortunately, many crypto investors get caught up in short-term volatility or take too much risk because they believe everything industry insiders say instead of doing their homework. Yes, there must be an element of “investor beware.” But if we’re trying to move crypto into the mainstream, platforms, influencers, and leaders should at least use more tempered and less aggressive language, while being more aware of their message and audience.

Expected rise

It is possible that cryptocurrency will soon see a significant rebound, as it has after virtually every downturn since crypto began with the launch of Bitcoin in 2009. The momentum of this upswing could become stronger and more long-lasting with more careful research and responsible retail decisions investors, better behavior from crypto influencers and greater regulation from governing bodies.

But instead of speculating, investors should focus on why individual blockchains could become more valuable through mass adoption, based on their distinct advantages, underlying technology and the people involved. The current downturn presents a great opportunity for investors to clean house, spend the necessary time gaining better understanding and potentially reducing risk.

By conducting this type of evaluation, you can put yourself in a stronger position. So when the crypto market starts to rise again, your money will be in a safer place, you will feel better about your investments and the chances of success will increase accordingly.