The crypto crash was a shock and many lost huge amounts of money. But as shocking as it was, the one thing we can all do is learn from it. I am a firm believer that education is key to success and if we use this crash to make better-informed decisions next time we invest, we can look to be smarter next time around. 

I have always said that cryptos are going nowhere and even as I write this, BlackRock, the world's largest asset manager, with US$10 trillion in assets under management, has partnered with the world's biggest Crypto exchange, Coinbase. This news shows how the markets are beginning to recover and there are big things ahead.  

So, here’s what we can learn from the crash and the strategies we can implement for future investments. 

How the future of crypto and blockchain might pan out

There will come a period of sudden growth and revitalisation in the markets, and it is worth anticipating incentives such as ‘Bitcoin Halving’ may come into play. Bitcoin halving is the process of imposing synthetic price inflation in the cryptocurrency's network and cutting in half the rate at which new bitcoins are released into circulation. This makes the supply lower therefore the price to purchase is higher. 

There are many advantages of cryptocurrencies. For instance, Solana in comparison to Ethereum is faster and easier to utilise but as its bandwidth is overloaded with the number of transactions per second so it can be slower. In addition, investors and traders are taking their crypto investments off the market to the ‘wallets’ which are essential to buy, trade and sell cryptocurrencies. Each trader and investor’s wallet has its own number, code and password to validate and protect the transaction but taking crypto investments off the market can give a warped view of the overall volatility. 

Which crypto exchanges are experiencing catastrophe and why this may have been written in the stars?

Some crypto exchanges such as kucoin and Huobi have financial problems therefore it is safer to transfer the shares to the bigger, more credible crypto exchanges such as Kraken and Coinbase. This is really just common sense and I always advise any new traders to stick to the top ten coins as a starting point as they are more stable and less prone to fluctuations. 

What you should do if Bitcoin drops to $10k and why

This is not the end of the financial crisis since markets will constantly fluctuate. The dips are expected, and more are expected in the future. An investor can take advantage of this situation by selling the shares short-term. If bitcoin drops to 10K, I suggest that investors should cautiously monitor the market and buy (accumulate) more shares taking into account that there will be periods of growth in the future. 

Why being liquid is so vital to your success as a trader/investor

The liquidity allows investors to use the market opportunities, for instance buying or selling the ‘one-off items that are not expected to recur, and which therefore do not constitute part of a trend.  In the same regard, the crypto market being liquid enables investors to react quickly to the dips and peaks in the market. 

As I said before, this is not the end of crypto, it is only the beginning and I still believe there is a lot of money to be made for savvy investors. When the markets are low, huge opportunities appear to make good profits; buy low, sell high, that’s our motto. 

About the author: Renowned stock market and wealth educator, investor, and entrepreneur Marcus de Maria is the Founder and Chairman of Investment Mastery, one of the world’s leading investment and trading education companies. 

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As the total crypto market cap dropped by $90 billion within 24 hours, the number of searches containing “Bitcoin dead” surged.

While experts are divided on what the plummeting of cryptocurrency means — a temporary setback or signs of a larger recession — it is clear that the increased volatility of the market offers many lessons for investors. Whether you’ve been hesitant to invest in crypto or are second-guessing your choice to do so, here’s how the crypto crash illustrates the risks of cryptocurrency investments and what you can do to manage those risks.

Understanding the risks associated with crypto

The crypto market isn’t a stranger to crashes. Bitcoin alone experienced a major crash in late 2018, followed by significant crashes during the COVID-19 pandemic. However, crypto’s tumble into its lowest levels since 2020 is evidence that holding onto your crypto assets can be a dangerous game in itself. Even Coinbase has laid off 18% of its workforce, and many investors are predicting a long-lasting crypto winter. We’ll explore some of the risks that the current state of the market has unearthed.

Loss of money

One of the core lessons that the crypto crash can teach investors is the fact that cryptocurrency isn’t a reliable investment at all. When you hold onto your crypto assets through a crash — or when you decide to take advantage of low costs to invest — there’s never a guarantee that your assets will bounce back. This is because cryptocurrency like Bitcoin has no intrinsic value.

To manage your risk, it’s important to avoid putting all (or even most) of your eggs in the crypto basket. Crypto should be treated as a gamble. Whether you sell or keep your crypto assets should be a question of how much you’re willing to risk, and perhaps what reward you’re waiting for before you cash out. If you’re looking to increase your profit to reach your long-term financial goals, maintaining safer investments, like high-yield savings accounts and index funds, is ideal.

Reputational harm

If you’ve developed a professional network or gained followers due to your crypto usage, the current crypto crash may have been a blow to your reputation. For many old-school investors and others outside of the investment world, the crash is being viewed as evidence that crypto isn’t a legitimate investment.

One key to risk management for crypto investors is being willing to take ownership. When crypto falls more than you expected, be willing to admit your miscalculations. Continuing to promote crypto as a volatile market can damage your reputation further when the market fails to bounce back quickly.

Cybersecurity threats

The plunge in cryptocurrency value hasn’t deterred blockchain hackers from taking advantage of virtual vulnerabilities. As the market crashed, hackers made off with $100 million in cryptocurrency. Crypto and NFT thefts and fraud are continuing to rise.

Choosing a secure internet and a cold wallet is key to reducing risk when investing in crypto. Cold wallets aren’t connected to the internet — which limits your susceptibility to cyberattacks — and are protected by physical keys that you can store in a secure place. You can even store your assets in multiple wallets to get further protection.

However, it’s always important to keep potential insider threats, which cause over 30% of breaches, in mind. People close to you — and even those inside investment firms — are more easily able to hack crypto wallets and steal funds. Avoid having your entire investment portfolio on a public blockchain, which can make you a greater target for hackers. Ideally, crypto shouldn’t make up more than 5% of your portfolio.

Environmental issues

Cryptocurrency is widely recognised as a threat to the environment due to the large amount of energy needed for mining. Unfortunately, the crypto crash doesn’t have much of a silver lining, as the amount of processing power used for mining isn’t declining. This is an important time for investors to consider the carbon footprint they’re leaving behind, as well as evaluate whether the environmental and financial costs of energy are worth the uncertain earnings.

Stablecoins are not so stable after all

Many crypto investors turn to stablecoins to avoid the volatility of the greater crypto market. Stablecoins, like Tether and Terra, are meant to maintain their value since they’re pegged to real assets, like gold or the U.S. dollar. However, TerraUSD crashed with the rest of the crypto market, leading to disastrous results for its sister token Luna.

Investors must recognise that there isn’t actually a safe way to enter the crypto market. Stablecoins don’t provide the stability they’re meant to, which means they can’t reduce your risk. As international governments discuss the possibility of regulating stablecoins, the future of stablecoins is largely unknown and, once again, a gamble.

Protecting yourself from bad crypto investments

While there isn’t an easy way to protect yourself from bad crypto investments, there are a few ways you can evaluate how reputable a cryptocurrency is. For instance, you can read up on the team behind the cryptocurrency — which should be disclosed and experienced — and read about their roadmap, so you can evaluate their potential for success. Taking a look at a cryptocurrency’s trading history, which should display steady growth, is also key to limiting your risk.

If you’re part of an investment firm — which is likely already taking steps to evaluate crypto — you can still take action to protect your business by keeping your organisation agile. In a volatile market, a firm that learns from failure and eliminates bottlenecks created by silos and hierarchies is best equipped to think on its feet when issues occur.

There’s no telling what’s in store for crypto in the future, so anyone involved in or considering investments must be wary of the market’s volatility and take steps to manage their own risk.

About the author: Adrian Johansen lives and thrives in the Pacific Northwest. She covers topics related to business and tech, especially when they intersect with sustainability and diversity issues. You can follow her on Twitter at @AdrianJohanse18.

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In May this year, a crash in crypto prices wiped out over $300 billion of value in one week, igniting fears that the runaway development of crypto could cause a global financial crisis. 

That the crash was triggered by the implosion of a ‘stablecoin’, TerraUSD, caused particular concern. Stablecoins are so named because they are linked to low-risk assets, but TerraUSD’s peg to the US dollar was via another cryptocurrency, Luna – and when the market lost faith in Luna, it took down TerraUSD, along with the confidence of many crypto investors. 

At the same time, in early June Japan became the first major economy to introduce formal regulation on stablecoins, legally defining them as digital currencies. 

Should there be a clamp down on crypto?

Or can it still become a catalyst for positive change if proper measures are implemented? There are strong calls on either side. 

Last year, China banned all crypto transactions, citing crypto’s role in facilitating financial crime and the risk its speculative nature poses to the country’s financial system. In February, the deputy governor of India’s central bank T Rabi Sankar stated “banning cryptocurrency…is the most advisable choice for India.” Most recently, American billionaire businessman Charlie Munger, applauded China’s move to ban crypto, calling for the same to be done in the US.

Crypto concerns are valid

The anonymity of cryptocurrency transactions allowed it to be used for money laundering and financing illegal activities, as well as in Ponzi schemes and other kinds of fraud. Earlier this year, US Senator Elizabeth Warren raised concerns that crypto could also be used by Russia to circumvent economic sanctions.

At the same time, crypto has the potential to bring in major benefits. Lower transaction costs can facilitate micropayments, while smart contracts reduce banking fees, revolutionising financial inclusion, especially in developing and emerging-market countries. “Globally, privileged, developed and free societies account for only 20% of the global population. Crypto provides an alternative economic system that enables greater financial empowerment and independence,” states policy analyst Evin Cheikosman. Others like Alpen Sheth of Mercy Corps Venture highlight crypto’s technological significance, for example how cryptocurrency networks “provide a new paradigm for secure data and value transmission”.

But whatever your position, considering a full ban on cryptocurrencies possible at this stage is wishful thinking. They are already an established feature of the global financial landscape. In 2021 alone, 16% of Americans and 10% of Europeans invested in crypto-assets, and the first Bitcoin exchange-traded fund was launched in the US. Even after the recent crash, the global cryptocurrency market is worth over $900 billion by some estimates. In other words, the genie is out of the bottle.

Suppressing cryptocurrency now would only drive the market underground

Or into jurisdictions where its negative uses would thrive. 

Instead, there should be effective, global regulation implemented to take full advantage of the benefits of this emerging technology. And while cryptocurrency is on the frontier of innovation, looking at past mistakes can be instructive.

This is not the first time the global financial system has faced uncertainty and issues when faced with new asset types. Non-regulated Collateralised Debt Obligations (CDOs) which became notorious as a leading cause of the 2008 financial crisis are one example. Over-the-counter (OTC) derivatives, which are financial contracts that do not trade on an asset exchange, were another instrument found to play a role in the crash. In 2010, regulation of OTC derivatives was brought in with then European Commissioner for Internal Market and Services Michael Barnier stating, “no financial market can afford to remain a Wild West territory”. 

But in the case of both OTC derivatives and CDOs, regulation came after the crash. This time around, regulators seem to be determined to put effective regulation in place before crypto can cause a global financial crisis.

Regulation to prevent crisis

Fabio Panetta, Member of the Executive Board of the European Central Bank, pointed out in April that the crypto market was larger than the $1.3 trillion sub-prime mortgage market which triggered the 2008 global financial crisis. “Now is the time to ensure that crypto-assets are only used within clear, regulated boundaries and for purposes that add value to society,” he said.

Major crypto market players also accept the inevitability of regulation and want to play a part in its development. Changpeng Zhao, CEO of Binance, the world’s largest exchange for trading Bitcoin and other cryptocurrencies, said recently that it is time for regulators and industry players to work together to develop effective, global, fit-for-purpose regulation.  

Conclusion

The debate surrounding cryptocurrency is too often polarised between advocates and detractors. What is clear is that crypto brings in new possibilities but also familiar problems. The latest crash in the global crypto market should serve as a serious warning for governments, investors and the fintech sector to bring in comprehensive regulation. We must learn from past mistakes in order to realise cryptocurrency’s full potential and protect our financial system from a crisis. 

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