CRYPTO Investors: Have You Finally LEARNED Your Lesson?

At the beginning of May, the total cryptocurrency market was worth almost $1.8 trillion; by May 12, it was only worth $1.2 trillion. It seemed a distant memory from November 2021 when the crypto market grazed the $3 trillion mark.

Every catastrophe has an important lesson:

The lesson should be clear to all investors: good times don’t last forever in the financial markets. When everyone at the water cooler is talking about investing in a particular asset, that’s a solid signal to sell because the market is likely topping.

More specifically, to crypto investors, the message is loud and clear: this market is volatile!

The technology is still in its infancy, and there are many wrinkles to iron out. One thing for sure is that just because a coin is described as “stable” doesn’t mean it is! Just ask the Terra community about what happens when the stablecoin decouples from its point of stability.

Secondly, investors have to learn that crypto is one of the riskier assets out there because it’s based on virtual technology and not anything physical.

Compare crypto to other asset classes:

Commodities (gold, silver, oil, etc.) and real estate are all physical things you can touch, and no matter what happens, you can be confident that their value will never fall to zero.

Equally, owning a share in a company gives you a piece of that business — a business that owns real-world assets and generates cash flow. So even when a company goes bust, which is unlikely, shareholders will usually still get something back when the assets of that business are sold.

In sharp contrast to cryptocurrency, fiat currencies are backed by central banks and governments with a vast number of powerful tools to keep that currency stable. So short of a complete government collapse from something like war, you’re unlikely to lose all your money by investing in fiat currencies.

Cryptocurrencies can become utterly worthless in days if the underlying technology behind the coin breaks; just ask Terra investors. Unlike real-world commodities like gold, virtual crypto coins can have infinite supply; and by the laws of supply and demand, anything in unlimited amounts won’t hold much value.

Here’s the bottom line:

With all that said, great risk can come with great reward. Cryptocurrency markets can provide astronomical returns that other markets can only dream of — on the flip side of the coin, you can lose 100% of your investment.

Lesson learned!?

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