The global financial markets have taken a big hit in the past few weeks, and the crypto market has been no exception.
We’ve seen some big crypto companies across the globe shedding staff, with some freezing trading on their platforms.
We’ve seen numerous emerging crypto-assets and companies tank, and all manner of investors caught in the cascading downward momentum.
While some may see the dust settling, others may view this as the smoke before a wildfire.
On the other hand, headlines have been dominated by “crypto bros” touting guaranteed profit, no risk returns, and trying to convince others that they can get rich quick in this market.
There seems to be no shortage of pushy sales staff waiting at doors and phones with purported expertise and a product to push.
It’s times like these that I hark back to the age old adage — if it’s too good to be true, it probably is.
Is this the Bitcoin bust where it all comes crashing down? Or is this just another early death bell before another Bitcoin boom?
The truth is no one really knows and we probably haven’t seen the end of the contagion just yet.
But among this flurry of activity, speculation and sell-offs, it has become apparent that many investors have failed to properly manage risk when it comes to their investments — and perhaps even more specifically, their crypto portfolios.
A lack of professional advice and sound investment strategy has led to many investors getting sucked into social media ‘experts’ spruiking high-risk products or market tips.
Contrary to the typical investment strategy in traditional markets, it appears that many investors are taking an impulsive buying and selling strategy when playing in the crypto pond.
Opportunistic ‘buy the dip’ messaging without an underlying investment thesis could bring even more pain to investors — that is incredibly dangerous.
What investors may need in the crypto market, and any investment market for that matter, is a proper long-term investment and risk management strategy that will take out the guesswork and provide a strong foundation moving forwards.
Mature and sophisticated investors use this approach with traditional markets, and investors ought to consider approaching the crypto market with the same mindset. In fact, maturity is often what’s missing at the moment.
Bitcoin, and the broader crypto market, has never been tested under these market conditions before — coupled with a potentially rocky near future in traditional markets, we arrive at an interesting intersection.
If we look beyond Australian shores, there is uncertainty and fear on the horizon — be it in Europe, the US, Africa or Asian markets. If these fears are realised, it will inevitably have an impact on the Australian market.
As a result, some investors look at alternative ways to invest beyond equities and securities so strongly tied to markets and nations across the globe.
In my view, we’re seeing an important market re-set — and this is an opportunity for the industry to learn from its mistakes.
I’m talking about the crypto companies that offered investors all different types of crypto-assets, coins and tokens, that are now tied up in knots because said coins and token, coupled with Wild West operations have proven to be problematic in the extreme. This is a learning opportunity for these companies to go back to basics and revisit their risk strategy.
We also have an opportunity for investors to take a long hard look at their investment portfolio and devise a proper investment strategy, with a clear understanding of what they are investing in.
The other key component here is the importance of strong and well-directed regulation.
Regulation of the crypto industry, and how the investment industry engages with it, is crucial — as that is how the market will reach its maturity, giving investors a level of assurance in a market filled with empty promises.
The carnage on the crypto market has reminded us that we must handle this class with asbestos gloves.
If you can’t stomach the waves when the weather picks up, you’d best get off the boat or find a captain who can.
Jeff Yew, founder and CEO, Monochrome Asset Management
