5 lessons from the cryptocurrency market in 2018
2018 was an unforgettable year for the crypto market, marked by a turbulent year due to a huge market downturn which saw the price of cryptocurrencies plummet by more than 80%. While Bitcoin is not the biggest loser, it has naturally attracted the most attention as it is the first and largest decentralized cryptocurrency by market cap. From an all-time high of nearly $20,000, the price of bitcoin — along with that of all other cryptocurrencies and tokens — has fallen year after year.
Below is a chart of bitcoin prices in 2018:
With such a deep drop, many have speculated that the “bubble” has burst, or worse, that cryptocurrencies are dying. However, this article looks at the positive results that can be reported throughout 2018.
After every failure there is always a lesson. Let’s review 5 key lessons from the crypto market in 2018.
The market is crazy
The cryptocurrency market is very volatile and volatile. Entire industries are unregulated, creating hotspots for scams, scams, pyramid schemes and more. At the same time, crypto exchanges also engage in manipulation. Market Price and Trading Volume. The market is full of illicit activities that are usually overlooked in traditional investment markets. Insider trading, money laundering, and pump and dump are all part of the cryptocurrency market.
No one can deny the revolutionary nature of blockchain technology, but the negative factors weighing on the crypto market – as mentioned above – can be far-fetched. The worry is that anyone can get into the market because there are so few guarantees. This means that any Joe can get into crypto and potentially use their life savings without any investment or even technology knowledge. We can learn a thing or two from this picture:
No one can predict the market
Technological advances combined with extreme market volatility make it nearly impossible to predict where prices will be at any given time. This is not surprising because the traditional model of valuing assets and making reliable predictions about valuation does not apply to cryptocurrencies.
Why? Because crypto projects are unregulated and therefore impossible to have financial reports, cash flow statements, balance sheets and income statements (P&L). Without traditional financial metrics, it is difficult to assess and quantify the true value of cryptocurrencies. Anyone can predict the bitcoin price for tomorrow or even the next year, but can you trust someone without quantifiable metrics to back up your claims?
Experts and gurus are constantly making market predictions. Almost all predictions fail or are unfounded. Look at John Mcafee, he predicts Bitcoin will reach $1 million by 2020.
Some of these predictions are controversial and have little or no predictive value. Even the most famous bitcoin forecaster on Wall Street – Tom Lee – gave up on trying to predict the price of bitcoin after many failed predictions in 2018. He wrote to his clients:
We are tired of people asking us price targets, due to the inherent volatility of cryptocurrencies, we will stop providing a time frame for fair value realization.
This is a common condition of price prediction in the cryptocurrency market.
High risk, high return
Traditional financial theory argues that the potential return one can expect from one’s investment is directly related to the risk carried by the asset. In other words, higher risk equals higher profit potential.
Cryptocurrencies are definitely the riskiest investment you can make due to the relative advancement of technology, lack of regulation and extreme price volatility. Also, it is not surprising to hear about cryptocurrency exchanges manipulating market prices.
Let’s take a look at the volatility of crypto market caps to get an idea:
Growth of over 4,700% in 2017 and then falling in value by more than 75% the following year makes crypto truly a volatile investment.
A risky market like the cryptocurrency market is a double-edged sword; You can win a lot of money, but you can also lose everything.
The 2018 market downturn is a testament to the volatility of cryptocurrencies and an important lesson for anyone looking to participate in the market. You need to be prepared for the risks you face when investing in cryptocurrencies. Thorough research and a basic understanding of cryptocurrencies is an important step in your investment process.
Most projects will fail
The glory days of crypto projects that raised hundreds of millions of dollars through ICOs are over and we can see the consequences.
A study reports that almost 50% of token projects are inactive during the 5th month onwards. Even worse, the project does not announce its capital and its coin is not listed on any exchange, with over 83% of projects inactive after 4 months. This is an amazing number for the entire ICO market.
Following are the reasons for ICO failure:
These figures are a testament to the hype and buzz gripping the ICO market, with no real content or flexibility behind the ICO project.
It’s easy to fall for the ICO hype in 2017, with the average ICO token return in 2017 of over 1320%, so tempting!
However, the bear market of 2018 caused the price of all ICO project tokens to crash. Most of the newly released coins even fall below the original ICO price.
Unsurprisingly, many people lose a lot of money in the ICO market. It was a painful lesson to learn that the unregulated nature of cryptocurrencies during an ICO forces people to do their due diligence before investing in any project.
Risk management is very important
In a high-risk market, it is important that you know how to manage your risk properly. Risk management requires that you take appropriate steps to minimize the possible loss on your investment and maximize your viable income. Here’s how to manage your risk effectively:
1. Diversify: Don’t invest all of your net worth in crypto. It’s like suicide. Let cryptocurrencies be one of your investments along with others like stocks, commodities and real estate. Different forms of asset classes involve different levels of risk; If you are a risk-averse investor, your portfolio should consist mostly of safe investments, with a small portion of risky assets such as cryptocurrencies. Even diversify your crypto wallet with various currencies and assets such as:
- Base Currency: The base currency represents the most popular cryptocurrency that all coins and other tokens are based on. It is the largest coin in terms of trading volume. Bitcoin (BTC) and Ethereum (ETH) are popular base currencies.
- Stablecoins: Coins pegged to stable assets like gold and USD. Stablecoins are important because they offer stability in a volatile crypto environment.
- Profitable Coins: Coins that offer a “dividend” or fixed rate of return in return for you putting your money into a digital wallet, similar to your bank account, which you earn for your deposit. The profitable coin is backed by a Proof-of-Stake (POS) consensus mechanism.
- Cash: Always make sure you keep some cash in your crypto wallet to act as a buffer. You will know when to charge your living expenses or when to enter the market when crypto prices look cheap.
2. Withdraw Winnings: Perhaps one of the most important decisions you will have to make is whether you want to withdraw your winnings over time. When cryptocurrency prices rise, don’t be afraid to retire early. It becomes very difficult when prices are going up and people have the mentality that prices are going to keep going up. But not. Therefore, smart people often take profits before the price starts to rise. This does not mean that you sell or liquidate all your coins, only some of them. Having extra cash is always a good thing.
3. Stop Loss: Stop Loss is a mechanism that automatically sells a coin when it reaches a certain price in order to limit investors’ losses when the currency price falls or to protect investors’ profits, if the price is higher. certain price targets. Stop loss is an important part of protecting your investment from sudden adverse price movements.
Cryptocurrencies have come a long way since Bitcoin was created in 2008. From a revolutionary coin capable of disrupting the traditional financial system to a vibrant ecosystem with over 2,000 coins and tokens created to solve this massive problem.
The innovation and development at the heart of blockchain technology can disrupt many traditional systems and applications. However, this comes with many challenges. The lack of regulation and the immaturity of the market have created a dangerous environment for the masses. We can only hope the market expansion goes in the right direction in the short term.
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