Over the past few weeks, we’ve watched as cryptocurrency has crashed globally. As this crash has sent a ripple effect through crypto companies worldwide, many investors are unsure where to go or what to do next.
We’ve seen during this turbulent time the growing interest the Canadian public has had in cryptocurrency. More and more people are now recognizing that cryptocurrency has legitimate use cases that may fall outside of the traditional financial system, and it’s essential to encourage this increased adoption positively, not hinder the development of an entire industry.
Now than ever before, it’s more important that investors stay the course and remain calm as we all navigate these volatile markets.
What Canadians Need to Know About the Current Crypto Crash
There have been multiple factors that contributed to the recent crypto crash. Firstly, the crypto market is primarily driven by uncertainty in the stock market on a macroeconomic level. The fear of a great recession has left many investors uncertain about how that would affect the crypto market, considering that this is the first time the cryptocurrency industry may be part of a global financial recession.
The massive innovations we’ve seen in recent years are now undergoing a stress test, and investors have become more skeptical. Algorithmic stablecoins, which often attract users with high yield products, have come under much scrutiny. The biggest algorithmic stablecoin, UST, was created by the Terra Foundation. In early May, large withdrawals from the anchor protocol and UST pools started to depeg UST from the U.S Dollar. This wiped $83 billion worth of value, leading to the collapse of the algorithmic stable coin UST and its sister token Luna. This loss of confidence and value has brought down the entire market and is one of the primary reasons we recently saw a crypto crash.
How to Best Navigate the Current Crypto Market Crash
There are multiple things that investors can do to navigate this crash and make educated, thought-out, and intelligent decisions that will benefit them in the long run.
- Avoid making financial decisions out of fear and emotion and reassess your financial situation.
- Calculate your runway and add some extra cash to your emergency fund if needed.
- Do not try to time the market. Set up recurring purchases if your budget allows you to do so and do not take on debt.
- Think about staking it if you are holding your cryptocurrency and that asset has a staking function. Staking is a great way to help lower your cost average without using up new capital.
- Research! There are a lot of great projects with great potential that you may have missed out on in the last bull run. This is the time to revisit these projects, and research the team, the project, the vision and milestones. These are crypto’s blue chips; avoid influencer-marketing and hyped coins without value.
What Investors Can Expect From the Crypto Industry in the Near Future
The crypto industry is here to stay, and these crashes help weed out bad actors and harmful innovations. With the ICO boom in 2017, we saw that most hyped projects had died out during the crypto bear market in 2018/19. In contrast, some significant innovations were established on many fronts like remittance, decentralized finance, staking, etc. There is a lot of talent in the crypto market, and I expect the next cycle will carry a new stream of innovations in payments and finance.
Advice for Canadians Who Are New to the Crypto Industry
The crypto market is still relatively newer, and bitcoin outperformed every other asset class in the past ten years. Some of the top leaders in the cryptocurrency space came from Canada. I want Canadians not to be blinded by the doomed stories presented by some in the media during this downturn in the market.
Unfortunately, the media sells you the crypto dream when the market is booming and near the top, but typically this is the worst time to start investing. Ultimately, there is a massive future for cryptocurrency, and I hope Canadians approach the market with an open mind. There are still many destructive projects, fraudsters, and scammers in the industry, and Canadians should always stay vigilant with when and where they make their investments. The final tip is never to invest more than you can afford to lose.
How to Stay Calm During This Volatile Time
Investors should only invest in projects they genuinely believe in, aligning with the team, vision and purpose. Do not invest in projects for quick financial gain; these projects often fail as other investors flee the market. It’s essential to research and self-evaluate your investment decision by asking yourself two questions.
First, if this project will still exist in five years, and second, you will have enough liquidity to survive a multi-year recession, even if you lost your job. If the answer is positive for both, you should be comfortable riding out this crash. The most important thing to remember is to refrain from making decisions based on fear and emotion.