4 Reasons Smart Crypto Investors Don’t Care About Crypto Crashes
Not overexposed to crypto market
The cryptocurrency market has returned over 700% since the beginning of 2017 (at the time of writing). Due to the explosive nature of cryptocurrencies, many investors are turning to this asset class for speculation. Despite the potentially lucrative nature of cryptocurrencies, one must always be cautious of overexposing him or herself to the market.
In other words, don’t invest too much of your portfolio in cryptocurrencies. Make sure you diversify by investing in other assets like stocks, bonds, or even just plain old cash. Mike Novogratz, an ex-fun manager at Fortress Investment, says its “almost irresponsible” not to invest in Bitcoin, and suggests everyone should have 1-2% of their net worth in cryptocurrencies.
This way, even if the cryptocurrency market disappears tomorrow, these investors only lose 1-2% of their portfolio. However, if cryptocurrencies go up, smart investors will take profits off the table on the way up. This way they don’t lose money if the market corrects itself back down.
Keep eyes on big picture
Cryptocurrencies and blockchain technologies are still at a very early stage relative to traditional money and similar technologies. Smart investors don’t let market downturns affect their opinion of cryptocurrencies because they invested in the underlying technology and for the long-run, not for a quick profit. To put this into perspective, the market cap of all cryptocurrencies was $100 billion last year (and $200 billion this year) which was 25% the market cap of Amazon and less than 1% of the world’s money (including physical money, stocks, gold, etc.) at $83.6 trillion.
Furthermore, many people are currently uncomfortable investing in cryptocurrencies, which means this is perhaps the best time to invest in cryptocurrencies. Thinking back to December 2017 when everyone was comfortable buying cryptos because it was hot. During those times, people were even buying cryptocurrencies with their credit cards. And then what happened? The market crashed more than 50% within a few months to current levels. Many people last year said they didn’t want to invest in cryptocurrencies because “the wave is over” or “it’s too late to invest now”. Well… now it’s no longer “too late”.
Elimination of all bad projects
Up until August this year, ICOs have raised $6.3 billion which is 118% more than 2017’s total of $5.3 billion. There are so many projects available for investors that it can be difficult to choose which projects are worthwhile. However, as the market matures, investors are realizing how many bad projects exist in this market and, more importantly, how many of these bad projects are failing. Two sites that are actively cataloging failed crypto projects, Coinopsy and DeadCoins, have found that over a 1,000 projects have failed in the first half of 2018. The money came in and the money went out, and savvy investors everywhere saw the bubble burst coming. Although most of these failed companies are exit scams and pump and dump schemes, some are legitimate companies that simply didn’t raise enough money or is failing to keep up with operating expenses due to falling cryptocurrency prices. Particularly Ethereum, which has lost more than 80% of its value since January of 2018.
Many fraudulent companies are being exposed by their historical graphs that show a steep rise and fall of price over a short period of time. However, since the bubble has burst, things have improved in the crypto world and projects that remain can actually provide value to the market. Those who have scammed the market and their investors have eliminated themselves from the space, allowing projects of value to rise to the top. In other words, the possibility of investing in a bad project has effectively decreased, and the projects remaining have a better chance of showing stable and organic growth.
Institutions are positioning themselves into crypto
In 2018, positive news related to institutions entering the crypto market have increased dramatically. From crypto exchanges offering custodial services, to traditional investment funds purchasing their first bitcoin, to bank-backed crypto projects and exchanges, 2018 has been a year full of positive momentum. Unfortunately, all this positive news has had a negative impact on cryptocurrency prices.
In one of our previous articles, we mentioned 3 impediments that is preventing institutional investors from entering the crypto market:
- Lack of Proper Regulation
- Poor Security Infrastructure
- Inadequate Liquidity for Large Orders
Solutions to these problems will come slowly, not overnight, but change is definitely happening. For the time being, markets are very uncertain and sensitive to negative news while apparently indifferent to positive news. Investors who are willing to step into the market now and ride the uncertainty wave will stand to benefit the most in the long-run.
“B2B reporter – Content Manager – Contributor – Fintech – Blockchain – Cryptocurrency”
Simon Chou is a B2B reporter and content manager specializing in technology and finance. He has worked with many clients in the fintech and blockchain space. He holds investment positions in bitcoin and other large-cap cryptocurrencies, and has been reporting on cryptocurrency since 2017. Currently, Simon is the content manager for a major cryptocurrency exchange @HybridBlockHQ.