The crypto market crashed. There is the concern of a broader market crash and looming recession. The market indicators were there and are ever-present now.
This post explores why the crypto market crashed. Whether it was the decrease in overall U.S. markets liquidity in early 2022 or governments’ cash injections into economies worldwide, investors are now paying for trading in such a volatile market.
Does HODL (“hold on for dear life”) still apply? Has the market bottomed out? What is the future of cryptocurrency trading? How does an investor re-establish confidence in a market rife with scandal and significant losses?
Celsius is Dead. So is FTX. These Failures Impacts Everyone.
Celsius—one of the largest crypto loan platforms—is bankrupt. FTX is gone, along with billions of dollars of fiat money. The U.S. Department of Justice (DOJ) has requested to conduct an independent probe into FTX’s bankruptcy. This request is a standard tactic allowing the DOJ to collect evidence of criminal wrongdoing. As a result, Sam Bankman-Fried and Caroline Ellison (ex-CEO of Bankman-Fried’s Alameda Research) are likely going to Federal prison. For a very long time.
A lot of investor money is locked up or just gone. Bitcoin (BTC) hit a two-year low after FTX collapsed. BlockFi, Three Arrows Capital, and Voyager Digital filed for bankruptcy. Retail investor losses need to be recognized. Many institutional investors and a few crypto “whales” got rich. The explosive market gains and then the quick run to today’s bottom was one thing: a simple transfer of wealth. Poor money entered a nearly rigged market, which transferred as the rich cashed out at mid to high exchanges. Then they shorted the market to the bottom. Entire life savings are gone. Some would say stolen.
So Now What?
You don’t have to exit crypto just because the crypto market crashed. If you’re a HODL freak, you might as well maintain your positions. In cryptocurrency, what goes down goes back up. And then goes down again. There is a known market cycle though no perfect science can predict it. But let’s look at diversifying your portfolio. Instead of hating fiat-based trade opportunities, you can use them to earn and hedge while crypto decides its next move.
Online brokerages make opening trading accounts more straightforward than ever. Some apps provide a significant amount of market research covering the full range of investment options, conventional and not. Others have AI-driven automated trading, allowing retail investors to “fire and forget” investments and hedges.
The ability to effortlessly trade on markets is an advantage. However, only if you put reasonable research effort into your trades, funds, or otherwise. One of the “sells” for investment apps is that you don’t need a master’s in business administration (MBA) to win in the markets. This statement is true. But you must read and understand trusted information and avoid rampant misinformation.
If you are not interested in reading, you are missing out. Readers are leaders. However, at least consult an investment advisor. You need near-expert knowledge to lessen your risk exposure.
Going at it Alone
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Using tools that provide research, analysis, comparisons, and insights helps you understand investment options that speak to your goals. In addition, the data enables you to identify your investments’ good and bad qualities so you execute your trades with clarity. Investment is an art form, as is being well-read.
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Fair Warning in a Post-Crypto Market Crash
By the end of 2022, the world will produce 94 zettabytes of data daily. As mentioned above, clarity should be your goal in all investments. Of these 94 zettabytes, if looking at the broader internet, 70% of the information generated is likely reasonably accurate. However, 20% of the data is expected to be somewhat misleading and marketing driven. And 10% is likely just malicious.
Be sure that you’re digesting information from a credible source. Yes, some of the articles are boring. But there was never easy money in this world, though many crypto enthusiasts told you there was. When the crypto market crashed, you should have learned. So take the time to read. Make reading an everyday routine. Your future self will thank you. We promise.
Valuing Your Investments
Determining where investment value comes from broadens your prospects. For example, an investment that creates value through manufacturing affords you confidence in what the company can produce and sell and how it’ll likely grow. Other companies are services-based, have fast growth, and are highly speculative. The value of these companies is intangible and risky. Only you can determine how much risk you will tolerate for what return over a specific period.
The Value of Crypto and Equities
In March 2010, BTC started trading at CAD 0.0039. So, where did that value come from? Bitcoin is trading at approximately CAD 22,000 after falling from a 52-week high of nearly CAD 75,000.
While BTC has use cases, its value comes from retail and institutional investor speculation. And as we saw in crypto’s latest market frenzy, institutional involvement (e.g., bank, hedge fund) can drive general investor interest and overinflate values.
The value of cryptocurrency is whatever people believe it is worth. Cryptocurrency is the hope and fears people have in it. When there is optimism, the price rises. When there is negativity, prices lower. So if you put your life savings into crypto, your return would be determined by how people feel at the time of purchase and sale.
You might say trading on the stock exchange works in the same way. However, actual companies are represented on the exchange. These companies have tangibles such as property, equipment, and people. Value is created, controlled, and grown by strategic and day-to-day decision-making. Even if to hedge a risky crypto portfolio, owning shares in actual companies will likely always benefit you in the long run—if adequately chosen.
Eggs and Basket Diversification
Everyone always says not to put all your eggs in one basket. The truth is that you need to diversify both your eggs and your baskets. A diversified portfolio reduces risk exposure through a mix of low, medium, and high-risk financial instruments. This may include various stocks, bonds, forex, commodities, crypto, etc. In addition, there often are correlations between multiple markets, and it’s essential to understand potential economic impacts on your positions and overall portfolio.
Long-term HOLD and HODL
It doesn’t matter which market you invest in. Day and swing trading are risky. You should build a diversified portfolio that provides long-term stability against your short-term, high-risk or high-reward bets. Don’t be afraid to take positions that may take years to produce significant returns or pay annual dividends. Money is money; while risking some, you should place long-term bets as offsets.
Determining the strength of your investments means using real-time information, research, and the resulting data outputs to your advantage. Take this knowledge and apply it to your chosen investment platform and track your progress on at least a weekly basis. Do not be afraid to close out positions and take on new ones. You are not married to any one investment. Adjust your portfolio as needed.
Take Your Investment to The Next Level Using Qtrade
We’re still big fans of the Qtrade platform. Qtrade is on a simple mission: help everyone to invest with confidence. We do that through our intuitive and easy-to-use online brokerage platform. Qtrade Direct Investing is where clients can trade stocks, ETFs (Exchange-Traded Funds), options, mutual funds, bonds, GICs and other securities, all at competitive prices.
Qtrade also offers a full suite of non-registered and registered account types including, but not limited to, Cash (individual and joint), Margin (individual and joint), TFSA, RSP, RIF, RESP, Corporate and other non-personal account types.
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A market crash always corrects itself. However, diversifying your investments and employing the right resources helps you understand your investments and allow you to make informed investment decisions in both bull and bear markets. Creditpicks remain your source for all things related to finance. Subscribe to our blog and get FREE access to your TransUnion® credit report.
