Cryptocurrencies collapse: 5 lessons for every Web3 investor today

Elizabeth Smith

If you invest in the Web3 and are passionate about cryptocurrencies, you cannot avoid keeping in mind 5 lessons that, after the earthquake caused by the fall of some companies, could protect your capital.

In a market as vast and dynamic as digital currencies, the opportunities are undeniable.

Unfortunately, however, certain events have pushed the sector further and further down, setting cryptocurrencies back a few years.

The year 2022 marked several crypto companies to the point of bankruptcy.

We recall TerraUSD, Three Arrows, the crypto-lender Celsius and last but not least, Sam Bankman-Fried’s FTX.

But all this teaches and reminds of five important lessons. Do you know which ones? Let’s find out them in brief.

Cryptocurrencies are very risky

In a market such as the crypto-based one, the high risk rate is nothing new, but it is often underestimated.

Remembering what kind of industry you are dealing with is important to realise that money held the night before can disappear the next morning. Many traders underestimate this concept.

While it is true that high volatility can allow you to make a lot of money, the opposite is also true. Holding a certain amount of capital in the form of cryptocurrencies does not guarantee any return.

Why? Simply because it is a market that is not yet regulated, in which very different players operate and which has proven to be far too ‘susceptible’ to the behaviour of certain companies or investors.

Holding crypto for a long time can lead to getting rich for short periods, only to lose most of one’s earnings in a couple of days!

Regulation of cryptocurrencies is necessary

Of course, regulating this sector is always on the agenda in finance.

What has allowed multi-billion dollar companies such as TerraUSD or Celsius to become unregulated is precisely the lack of bodies and offices that can prove and guarantee their reliability, allowing the players involved to operate in a grey area that is especially dangerous for users.

In a regulated exchange, in fact, it would never be possible to use customers’ funds in times of crisis (as happened with FTX) to cover one’s positions.

Moreover, in regulated companies there is always careful control of resources, balance sheets and, especially in the case of bankruptcies or problems, there are bodies that protect investors’ capital.

Regulating the digital sector is therefore a must after the recent scandals!

Buying cryptocurrencies is not for everyone

Many are looking for a way to get rich.

Today, cryptocurrencies are one of the answers to this desire, due to the huge media push and digital revolution that have taken place in recent years, but they are not the answer many of us are looking for.

Investing in cryptocurrencies is one of those operations worth doing when looking for an alternative to add to our more traditional investments.

Trying to invest only in digital currencies can push one towards a very high risk profile, making investing in Web3 not so much a financial transaction, but more a sort of wheel of fortune.

Unfortunately, however, one risks losing a lot and more easily than with other types of assets.

So it would always be wiser to devote oneself to other types of markets, leaving crypto to the more experienced, or at least to those who can best manage their risk appetite.

Let us not forget how easy it is to lose everything in this sector. A lesson FTX customers may have learned the hard way!

Crypto market: less and less confidence

More and more businesses and companies have encouraged the use of cryptocurrencies to buy goods and services, slowly managing to spread the idea that they were a useful innovation.

And they are! Indeed, it is undeniable that the blcockhain and the introduction of cryptos eliminate some of the problems associated with more traditional currencies.

However, due to their ‘non-tangible’ nature, it seems that consumer confidence in using them is still fragile.

Recent events and the withdrawals of huge amounts of digital currency at the most well-known exchanges (look at what happened on Coinbase) make one wonder how far our cryptos still have to go today to be accepted.

Less and less trust seems, in fact, to surround the Web3 due to the continuous frauds or bankruptcies declared by prominent companies in the sector.

Cryptocurrency collapse consequences? Minimal

A final lesson that is more of a concern for those far removed from the digital sector is that of the consequences of the continuous disasters and collapses that have occurred within the Web3.

Crashed companies operating with blockchain and cryptocurrencies seem to have more of a media effect than a practical one on a global scale.

Suffice it to say that they are talked about all the time, even in reference to the BlackRock fund or Ontario Teachers Pension and their participation in the now ruined FTX.

But this is where we notice the difference between the big investors and the neophytes: Ontario Teachers Pension’s stake was in fact only 0.05% (about $95 million) of its entire capital!

Losses of this kind do not have a major impact on large funds, any more than it will on other citizens, investors or not, within such large entities.

Let us therefore worry about individual investors betting too much on digital currencies, rather than any global repercussions from the fall of companies like Celsius, or FTX. These always remain minimal!

Read also: Is it still worth investing in cryptocurrencies with the sector in crisis? Here are some predictions

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