3 Lessons Learned From the Crypto Sell-off

There is no question about it: the last couple of weeks have been rough for crypto investors. The leading coin, which is Bitcoin, struggles with $20,000. Ethereum, which follows up, battles $1000. The cryptocurrency market itself has dropped by 65% since Autumn.

A steep sell-off in the cryptocurrency market caused a low not seen since 2020. Over $300 billion is vaporised from the crypto market, and headlines are full of bad news. 

bitcoin long term investment

In just three months, over 1,700 layoffs have been announced in the crypto industry. Crypto.com terminated 5% of its workforce, BlockFi reduced its employees to 20%, and Coinbase laid off 18%.

The causes are varied and complex. But it is possible to identify some broader factors that have led to this downturn in prices and investor confidence. 

The uncertainty surrounding Ukraine’s conflict with Russia is one major factor. The Fed interest rate hikes are another. The Chinese ban is also a candidate factor. Finally, there is an institutional support retreat with Musk, one of the biggest investors, citing the environmental concern of Bitcoin. 

For those caught in the bear market and panicked, it may be hard to see the good side. But remember: This is all part of the process. You’re not alone, and there are a few lessons everyone can take away from this period.

Real Crypto Value is Adaptive, Not Rational

The crypto market is not rational; it’s a complex adaptive system that adapts to its surroundings. It’s not the same as the stock market or any other traditional asset class. 

The best way to describe these markets is ‘real-world experiments with money,’ where you have multiple people conducting experiments simultaneously and many different experiments happening simultaneously. The results highly depend on external factors (like economics) and internal factors (like personal beliefs). 

But if you have any interest in trading crypto over time—and especially if you want to make money doing so—you need to train yourself to think like an adaptive trader instead of being a rational investor.

To summarise, it may be time to stop mulling over the cryptocurrency crash and focus on something more important: what the crypto market represents. If you think of this like any other financial asset in terms of price discovery and equilibrium, you are missing out on what makes this space unique.

Crypto is Still a Volatile Asset Class

What are you supposed to do with this information? Well, it’s simple. Don’t panic. Just because Bitcoin has been dropping in value for the past two weeks doesn’t mean it will continue to fall indefinitely. It might even rebound soon.

The most important thing to remember is that crypto is still a volatile asset class, even though it’s been around for more than ten years. Crypto’s volatility is as old as the hills, and it’s not going anywhere. The truth is, you have a chance of losing it all.

So when looking at your portfolio, don’t freak out if you see some red numbers. Instead, keep calm and remember that crypto isn’t for everyone. You should only invest what you can afford to lose.

Experts recommend keeping your crypto below 5% of your portfolio to feel safe. Doing this, according to them, reduces your stress level and serves as a safety net.

Crypto is on a Slow, Steady March to Legitimacy

In April this year, the  Central African Republic (CAR) became the second country to adopt crypto as legal tender. The country joins El Salvador—which announced its plans to adopt cryptocurrency earlier—as countries that allow people to pay bills with cryptocurrency.

However, the crypto sell-off was a reminder that crypto is still in its infancy. It’s still a volatile investment asset, and it has a long way to go before it can be considered mainstream. But what the market is telling us here is that despite this volatility, the technology behind cryptocurrencies is here to stay.

In fact, many experts believe that crypto still has at least another decade before it becomes mainstream enough for us all to know what blockchain is or how it works (or even why). 

As an investor with an eye on long-term returns for your portfolio, this means that now could be an excellent opportunity for those who are willing to hold onto their tokens through some tough times.

Crypto Sell-off: What’s Next?

So while it’s true that we’re not yet at the point where crypto is a reliable store of value, the fact remains that its potential to change the world is still very much alive. That potential doesn’t go away just because of how volatile the asset class can sometimes be. 

It’s easy to lose sight of this amid a volatile moment we’re currently experiencing, but you shouldn’t get too down about it. A few weeks from now, things will have normalised, and you’ll have a chance to use this volatility as an opportunity.