Like the years preceding, you could get filthy rich investing in crypto in 2022. You could also lose everything you ever owned. Crypto coins are a high-risk, high-reward asset. There are thousands of blockchain technologies competing; most will fail, some are scams, and a few will come out on top.
Everyone knows the explosive rise of Bitcoin since its inception in 2008. An asset worth $135 in 2013 rose to over $65,000 in 2021 before falling to $30,462 as of May 23, 2022. Ethereum also had a meteoric rise to the second most valued crypto coin. From January 2021 to January 2022, the cryptocurrency market rose from $767 billion to $2.4 trillion.
In May, the recent market crash (crypto and stocks) has left investors wary of high-risk assets, but there are still many who are urging enthusiasts to buy the dip. So what should you do? Should you take advantage of the low prices, or is it too dangerous to enter the market now?
Are cryptocurrencies safe?
There are several risks involved, and there are many more reasons to believe that blockchain technology is here to stay.
Here is a list of risks associated with crypto coins:
Though cryptocurrencies themselves are hackproof, their exchanges (Crypto exchanges) are more prone to cyberattacks than stock markets. There has been a long history of security breaches and humungous losses incurred by investors who had their assets stolen. Consequently, most exchanges and third-party insurers are offering hack protection.
Another issue is the storage of crypto coins. Prominent exchanges like Coinbase and Binance make buying and selling assets easy and offer in-exchange wallets; most people prefer to keep their investments in personal wallets; simply because they don’t trust exchanges.
Many people store their coins in cold storage (offline hardware wallets). Most crypto-wallets come with a key, without which investors will permanently lose access to their assets. Crypto-enthusiasts often mistrust centralized exchanges because they never provide investors with complete asset control. A government order could freeze your resources on an exchange, or they could go bankrupt, leaving you no means to recover your money.
Investors across the world are also worried about regulations. Global governments are polarised when it comes to crypto coins. China has banned financial & payment institutions from businesses related to cryptocurrency, and South Korea banned Initial Coin Offerings(ICO) in September 2021. Whereas, El Salvador adopted Bitcoin as a legal ledger in 2021. It was a move that jeopardized their economy and President Nayib Bukele’s rule as bitcoin tanked last month.
Many governments are unsure of cryptocurrency taxation and shut down their use as a tender on the darknet and other black markets. In India, for example, cryptocurrencies have a 30% tax, but the ministry still hasn’t declared them legal.
What is worse is that most coins on exchanges are termed ‘crappy coins’ or ‘trash coins,’ and they have no real value. These ‘meme coins’ are merely tokens with no real-world use. Shiba Inu and Elon Musk’s favorite- Dogecoin are examples of crypto tokens popular among crypto day traders and short-term investors. They are bought only to be sold again, quickly at a higher price. And have no long-term vision or technology to back them up. Despite this, Shiba Inu had grown by 1,296,236% since its inception.
Many altcoins (other than Bitcoin and Ethereum) often offer ICOs and exit the market immediately. The cryptocurrency world is wrought with scams, and if you do not read the whitepaper properly and follow the trends, your money could disappear overnight.
One such example is that of altcoins, TerraLuna and TerraUSD. These coins were partly responsible for the recent crypto crash, bringing down the behemoth Bitcoin by 25%. Luna lost 99.9% of its value in the crash of May 2022.
TerraUSD is a stablecoin designed to tether its value to the US dollar to reduce volatility. Do Kwon, the founder of Terra and Luna, is a trash-talking Stanford graduate who pumped up the prices of these coins with his showmanship. Even big investing firms were investing in Luna, which went from little less than a dollar in 2021 to $116 per coin in April 2022. Some big investors pulled out in time, but many lost millions. The twin coins lost a value of over $40 billion. After the crash, even Changpeng Zhao, the CEO of one of the biggest exchanges, Binance tweeted, “poor again.”
Like any other stocks or commodities in the market, no currency or blockchain commodity comes without risks. Sure blockchain is the future, but how sure can you be that the coin you backed is the winning horse?
Finally, blockchain is just one among many competing technologies that can be used to make cryptocurrencies, NFTs, and other digital assets. Holochain, for example, is said to be much quicker, less data-consuming, and more eco-friendly than blockchain. Though it is still in its infancy, if the technology catches up to blockchain, it might become outdated and could be phased out.
Is there a silver lining?
All these dismal tidings and examples of horrible crashes shouldn’t dissuade you. Crypto remains one of the most lucrative commodities globally, and for every hundred ‘meme coins,’ there is an undervalued gem. Prospective coins include Cardano, Solano, Holochain, SingularityNet, etc.
The recent crash is certainly a worry for day traders and short-term investors. But projects with real-world utility should continue to grow. Many celebrity investors have been silent on the recent crash. Hollywood celebs like Matt Damon and Curb Your Enthusiasm star, Larry David publicly endorsed crypto. Matt Damon recently even quoted the Crypto.com catchphrase, “Fortune favors the brave.” However, his post-crash silence has been criticized by the media.
Though the crash has slashed altcoin prices, these technologies are still in development and could make a comeback in the future. Cardano, for example, is one of the biggest cryptocurrencies by market cap and is designed as a scalable blockchain platform for running smart contracts. The project hopes to help develop decentralized finance apps, games, tokens, and the like. Though Cardano’s decentralized exchange (dex), Sundaeswap, failed and lost 83.43% of Cardano’s value from its all-time high, it is still considered a currency with immense potential.
Holochain or HOT is another project gaining traction in a bid to build web 3.0 (a decentralized internet). Despite its recent crash, the project has provided investors with a 100x gain in the last four years. Though dirt cheap at the moment, HOT is expected to hit $1 by 2030.
Crashes and booms are all part of the game. The stock market grew astronomically after the 2008 housing bubble collapse and market crash. And the cryptocurrency markets are no different. There is still room for long-term investors, and the market is expected to bounce back.
Cryptocurrencies are a better alternative to other assets because transparency is a function of blockchain technology. The details of every transaction are encrypted and correct many of the flaws of the traditional financial systems.
They are also deflationary assets. The Federal Reserve has been printing billions of dollars every month to combat a sinking economy. All that printing is causing inflation or stagflation as we speak. However, the only way to make bitcoin is to mine it, which is a very energy-intensive process. There are only 21 million bitcoins, and no government can print more on a wimp.
Also, cryptocurrencies are global assets and are unrestrained by national or regional supply-chain, policy, and market forces. These assets can be held secretly and transferred across borders lightning fast. These attributes give cryptocurrencies an edge over fiat currencies. Finally, cryptocurrencies have the highest potential for high returns, and because the tech is still in development have some unseen long-term prospects.
Many investors think the recent crash is a good thing. Forbes magazine even reported that the price volatility will help create a healthier crypto market and that the crash will help better projects outshine “meme coins.” Experts also pointed out that every previous crash has led to operational improvements in the crypto ecosystem.
Crypto is here to stay. There will be other Bitcoins and Ethereums, and both coins are here to stay. Ethereum co-founder Buterin said he isn’t a billionaire after the recent crypto crash. Dr. Merav Ozair, Professor of Fintech at Rutgers business school, said, “Blockchain technology is the future. There is no escaping that. However, it is difficult to predict which projects will last and which will fail and be forgotten.”