The cryptocurrency market has seen a dramatic selloff. Bitcoin BTC has lost more than 70% since November highs. Celsius, a lending platform, announced that it would be suspending a significant portion of its activities. The market volatility is expected to continue, and the digital currency ecosystem is ready for more pain. Despite the volatility of the market environment is far from over, we can learn from our experiences thus far.
Since November, Bitcoin has lost almost 70% of its value.
Past performance is not a benchmark of future results.
This phrase best describes the philosophy of investing. This sentence is used as often as the “sell-by” date on milk and is frequently ignored when evaluating performance. Although pattern recognition is essential for financial analysis, even the most experienced investors can fall into the anchoring trap and think, “this time will not be like before.” This is evident in liquidity provisions for institutions. Although it is obvious that no recession is the same as the one before it, most downside planning is based on the 2008 global financial crisis.
Echoes from the 2008 recession
What happens if the next recession lasts twice so long? It is difficult to predict whether the next recession will be of similar size and have the same longevity characteristics. Similar to cryptocurrencies, a lot of the activity was triggered by short-term spikes. The volume of investment would also increase as prices rise. According to the Wall Street Journal, “Crypto’s total market capitalization… peaked at almost $3 trillion in November.” This is not a cause for concern. It is an important reminder not to rely on yesterday’s results.
Don’t abandon healthy skepticism.
I was a student at the University of Pennsylvania’s Wharton School. Kellogg University has awarded me an MBA. I work in financial-services as my day job. On paper, I possess all the necessary qualifications to understand cryptocurrency conceptually. I have to admit, however, that I had difficulty understanding and contextualizing the intricate digital currency universe.
When talking to acquaintances, it became an indistinct marker of who was “in the know” about digital currencies. However, doubters were not completely silenced. This market selloff serves as a reminder to be a contrarian and not just to doubters.
It is okay to be on the sidelines.
Products, definitions, metrics, and other aspects of fintech are constantly changing in a rapidly evolving landscape. It’s perfectly acceptable to be passive observers rather than active participants in a rapidly evolving landscape like fintech. It is unnecessary to form an opinion right away, or even at all. You can learn, ask questions and reach your conclusions.
What’s next?
Coinbase announced recent drastic headcount cuts.
This could be the beginning of the decline in cryptocurrency prices. These effects are far-reaching: Coinbase COIN announced it would reduce its headcount by 18% last week. Volatility continues to creep into the market. We must all ask hard questions and prepare for new realities.
