At the end of January 2018 cryptocurrencies big and small did what they’ve been doing for the past few years now and took a (pretty massive!) dive. The market went from an all-time high of around $USD830 billion to around $USD240 billion at the time of writing.
Fair to say that a lot of people lost it, a lot of people got burnt and a huge number of (fairly undeserving) blockchain projects lost anything up to 90% of their value. Some deserving ones lost all their value – which was a good thing in the end. Ultimately the crash, particularly for Bitcoin, was another round in a pattern that has been in place for the past few years. Not that anyone who invested in Bitcoin or many of the legitimate Altcoin projects in December of 2017 would have been comforted by that.
As Bitcoin and the market in general begins to show signs of a recovery it’s worth looking at a few reasons why a market downturn isn’t always the end of the world.
One thing to always keep in mind with Blockchain (and anything to do with cryptocurrencies) – it is VERY early days. The market to this point has been made up of what is still a relatively small number of retail investors, for all of the hype that it has drawn.
Over the past 12 months we’ve seen a huge upturn in the adoption of blockchain in many areas of business – we’re beyond individuals and corporations and now into entire countries looking at blockchain adoption and usage. As many of the current major players (South Korea, China and others) move beyond the first stages of regulation and opening new markets for projects and therefore cryptocurrencies to grow, adoption will begin to increase exponentially.
The higher the level of acceptance and therefore legitimacy for real uses in Blockchain the more valuable the assets and therefore the whole market become. The addition of Bitcoin ETF’s and other asset trading vehicles (when they arrive, and they’re not here yet!) will further push adoption, possibly not all of it positively.
Crash is a nasty word, so let’s call it a downturn. In crypto they tend to happen regularly, firstly with Bitcoin and now with Ethereum and the Altcoin markets. Cryptocurrency markets are incredibly volatile, in the main because up to now they have been retail and small investor-driven – meaning it is very easy to create a panic and cause major issue – FUD is a prevalent concern in cryptocurrency markets and even very simple whispers of issues in a project can cause major price changes . Of course, with a dearth of fraudulent ICO’s and a LOT of very under-resourced, poorly managed projects out there, the rumour can also be entirely true!
The important things to remember about market downturns are (a) they’re not new, and they happen in every market and (b) what you do when the market turns south can determine whether it is a positive or a negative for you. Leading to the next point…
Your money isn’t lost unless you sell
Unfortunately the fear of missing out in any sort of trading is real, and human nature is in general pretty unhelpful in the kinds of scenarios you find yourself in when the market turns. For the majority of new traders, especially in markets like cryptocurrency where so much media attention talks to massive riches and incredible returns, watching the value of a portfolio shrink, sometimes by large percentages in short time periods, can be a panic-stricken experience.
Two rules should always apply.
The first is don’t put in more than you can afford to lose. It’s a simple concept but one that people continually forget – if you can afford to lose it and the market turns down you’re not going hungry or losing your home, which makes everything else easier to handle.
The second is ‘don’t flinch’ – rational decisions are better than panicked ones. Made some profit and worried that the market is turning? Sell and get out ahead. Market turned on you and you’re in loss-making territory? Followed rule #1? Sit and wait – in a lot of cases if the project is good the market will turn again and you’ll have another chance to profit.
Down means opportunity
Google “Buy the dip” – there are lots of great pieces of advice out there and good trading strategies that go way beyond an adage. Dips are opportunity, plain and simple. If you look at them that way, and you’ve done the research on the projects that you are buying into, then a market turn can be a great way to make bank.
There is a lot more to it than what it sounds though, and buying the dip in a micro sense is a great way to end up with no money – for early traders or people who are just taking a punt, do the research, buy when the market is well down and then sit on your asset – there are opportunities in patience too!
If you’d like to join the conversation or add some thoughts you can do so below.
Simon was the GM and Head of Business at SitePoint, and a mentor at INCUBATE.