2022 has been a sobering year for cryptocurrency investors. At the time of writing, Bitcoin’s price is hovering just above $20,000 per coin, down 68% from the all-time high set in early November of 2021. The total cryptocurrency market cap is sitting at just over $1 trillion, down from the $2.9 trillion high.
For people who started investing money in cryptocurrency anytime between 2009 – 2017, this “crash” isn’t new, but that doesn’t mean it hurts any less. Old and new investors alike have experienced pain and loss over the past months. Even if you didn’t lose money, someone you care about likely has.
Initially, many people fall into two emotional camps after a crash: denial and despondency. Both are completely natural and understandable. It takes time to process these reactions, and let them play out. But the goal is to experience them for what they are: reactions, and not let them snowball into long-term biases.
Denial, if left unchecked too long, leads to clouded judgment, unnecessary risk, and impairs decision-making. Despondency, or hopelessness, can be even more detrimental if left on its own, driving investors away from markets permanently for fear of further losses.
As we’ve discussed before, emotionally-driven decision making is the biggest roadblock toward growth as an investor. Building self-awareness and taking time before making significant decisions can help protect us against…well…ourselves.
So take a moment to check in with yourself. What emotions are you feeling around your financial life and financial health? How much are your emotions weighing into your investment decisions? Have you given yourself enough time?
(If you don’t feel you have, consider reading this article first, and re-approach this one when ready)
This post is not a “told-you-so” slap on the wrist message of discouragement, but it’s also not a sugar-coated, “everything is fine”,propaganda piece. Rather, it’s an encouragement to reflect on the lessons of the last four-ish years, to objectively reassess our perspective as informed and conscious investors, and to carry on better than we started.
Striking a balance
Despite all the panic, fear, and volatility we’ve experienced, in the crypto markets and beyond, it seems that the dust of public discourse, and reality, is settling. We may not be riding the highs anymore, but there are some benefits to a “sobering year”. A sober mind is a sound mind.
There are countless ways we considered approaching this topic, but in the interest of reflecting on our emotions, reassessing our information and beliefs, and resetting our perspectives and plans of action, we’re going to attempt to strike a balance.
As with anything new and disruptive, information and perspectives that rise to the top are commonly polarizing. I, and many other investors in the space, felt almost cornered or forced into picking a side on spectrums of beliefs about cryptocurrency where there is a lot of room for moderation. So, today we’re presenting three of these spectrums and hoping to offer a middle-ground for investors to consider.
Is Cryptocurrency a worthwhile investment?
Many voices of authority, “experts”, and innovators in finance and technology think that either:
1. Cryptocurrency will go to zero, therefore it’s a scam not worth investing in.
2. Cryptocurrency is the best asset class the world has ever seen, therefore it’s not worth investing in anything else.
The anti-crypto voices often purport a message that there is nothing to gain from investing in cryptocurrency – that it never has and never will be a smart investment. Whether they argue that crypto doesn’t produce anything, it’s inferior to gold, it’s only used for scams, illicit activity, and pump and dump schemes, or that the underlying technology has no real use, their commentary often seems to ignore data and very real growth.
On the other hand, something I found increasingly frustrating throughout the last bull market, is that the more I wanted to learn about the value of investing in cryptocurrency, the more I came across leaders in the space who advocated investing in nothing but crypto. Whether they champion one currency or token above all the rest, or believe current monetary standards are so inferior that they should be boycotted entirely, their perspective ignores essential risk analysis and diversification.
Clearly, cryptocurrency is not an effective inflation hedge, store of value, and does not operate outside of macroeconomic pressures as many have claimed. But it is also not dead. It is still a trillion dollar market despite massive volatility over short 14 years, and institutional money, time and top global talent are still inflowing massively into the space.
Both arguments are flawed because in investing there is ALWAYS a balance between risk and reward. Investors should never feel that have to choose between all in or nothing, but rather be given the information and tools necessary to align their investments with their own risk tolerance and time-horizon.
We believe strongly that cryptocurrency is neither a get rich quick scam destined to go to zero nor the perfect investment that will inevitably outperform all other traditional asset classes. We champion diversification, dollar cost averaging, and risk mitigation. More importantly, we see that the transparency, education, and tools needed to properly evaluate cryptocurrency as an investment have a long way to go.
Is Cryptocurrency really a currency?
We’ve discussed the polarization of cryptocurrency as an investment, but let’s now shift to what we hear about it as a currency:
1. Cryptocurrency is useless as a currency.
2. Cryptocurrency should replace all other fiat currencies.
The fact is, at this point in time most people still don’t transact using cryptocurrency on a regular basis. This is the thorn in the side of innovators, and the soapbox of doubters and nay-sayers. However, underneath the headline surfaces, massive progress has been made in making cryptocurrency closer to a viable medium of exchange.
The Lightning Network, a solution augmenting the transaction throughput of Bitcoin, is now able to process up to 1 million transactions per second, exceeding Visa and Mastercard’s standards of 5,000 – 65,000 transactions per second. Accessibility and lock-up requirements are still hamstringing adoption, but progress is being made.
This bull market also saw the rise of independent blockchains like Solana, that are able to match and exceed the transaction speeds of the global credit card systems.
Obviously, no cryptocurrency is yet stable enough nor has the technological infrastructure to replace all fiat currencies. Even if the technology does develop to that point, replacing fiat currencies has obvious regulatory, economic, and political ramifications that beg the question: does cryptocurrency need to replace fiat currencies to have value?
We don’t think so.
On a global level, one of the most important use cases for digital assets is cross-border payments. About 25% of respondents in a 2021 study claimed they have used cryptocurrencies to send money abroad. The use of cryptocurrency for remittances is skyrocketing. In Mexico, the third largest receiver of worldwide remittances, the country’s largest crypto exchange processed over $1 billion of incoming remittance payments in 2021 – a 300% increase from 2020.
The average non-crypto fees for cross-border transactions averages $15 per transaction and takes on average 2.4 days. With cryptocurrency, the same transactions cost no more than a few cents per transaction, with almost instantaneous completion.
Cryptocurrency is not useless as a currency, but it has a long way to go. It also does not seem to be on a path toward replacing the global currency system in its current form, and doesn’t need to in order to solve real problems in the world.
What about NFTs, DAOs, and Web3?
This market cycle saw the advent and popularization of new innovations in applications of blockchain tech, notably NFTs, DAOs, and the all-encompassing idea of Web3.
We fully recognize it would take thousands of pages to fully discuss the rise of NFTs, DAOs, and Web3, so we’re not going to do that. Rather, let’s focus on a common thread among them: their part to play in digital community building.
In part, the mission of Web3 is to create a new way to participate in digital citizenship, with more creative freedom, ownership, and digital rights. NFTs, in many cases, use art and digital membership to create group identities across the internet. Lastly, DAOs attempt to flatten hierarchies and redefine the traditional ingredients of organizations.
Talking to many people about just how quickly these applications of blockchain were advancing, I noticed two common perspectives throughout the bull market:
1. You will be left behind if you are not participating in digital community through NFTs, DAOs, or Web3 at large.
2. You are wasting your time with these fads.
Clearly, if these new movements have goals of truly creating digital community, then they can’t be successful if they aren’t inclusive (1) or long-lasting (2).
Although it is devastating to see the NFT bubble burst and DAO participation decline, the solution needed for balance has been offered by the bear market: time. Time is needed to filter out the FOMO-driven communities that lack inclusivity, and it is also needed for the nay-sayers to see that these movements are not just fads.
As crypto-curious people, there is no better time than this bear market to continue to learn about NFTs, DAOs, and Web3. Every crypto cycle has had explosive movements of new technology that require a downturn in order to be refined. In some form, these applications and their ability to create digital community and participation will come out better for everyone on the other side.
Where we’re going
There are a lot of uncertainties about the future of cryptocurrency, and anybody who claims to know what’s next probably shouldn’t be trusted.
What we do know is: it’s still volatile, it’s still risky, it’s still exciting, and it’s still full of boundless potential and possibility.
Most importantly, it’s still early – the window of opportunity to learn and grow in your knowledge and participation in cryptocurrency is nowhere near over or closing.
At Daizy, we strive to be a voice of comfort and reason for anxiety, a resource for learning, and a tool for accessibility and information. We’re excited to see what is next for all of us in the world of digital assets, and the evolution of Daizy’s place in it.