What Bitcoin Investors’ Top Key Takeaways From the 2018 Crypto Market Crash Should Be
- 1 Bitcoin's Price Rebounds, But What Should Investors Know About the Crypto Crash
- 1.1 (i) Financial Bubbles Will Always Exist:
- 1.2 (ii) Risk Mitigation is of Extreme Importance:
- 1.3 (iii) Confirmation of the Dow Theory:
- 1.4 (iv) The Global Crypto Markets are Synced With Each Other:
- 1.5 (v) The Market is Full of Pyramid Schemes and Scams:
- 1.6 (vi) Due Diligence is of Utmost Importance:
- 1.7 (vii) It's Not Easy to Trade Digital Tokens via Conventional Exchanges:
Bitcoin's Price Rebounds, But What Should Investors Know About the Crypto Crash
Bitcoin's Price finally rose above $4,000 USD for the first time in nearly a month and it seems as those any immediate rise in price and everyone is quick to call it the newfound bull season after a prolonged nuclear crypto winter bear market.
As most of our readers probably already know, 2017 was by far one of the insanest years for the crypto industry as a whole— with all of the top-10 altcoins (by total market capitalization) gaining more than 1000% in value. To be even more specific, at the height of the aforementioned Bitcoin craze, the total worth of the crypto market was estimated to be more than $800 billion.
However, all of this joy lasted for all but one year, as 2018 saw the market tumble and crash to record lows— with Bitcoin and Ethereum both losing over 80% of their values within the span of just 6-10 months.
So, without any further ado, let's take a look at some of the key lessons that we can takeaway from last year’s market meltdown.
(i) Financial Bubbles Will Always Exist:
It is worth understanding that any time a particular technology takes off in a big way, there is bound to be an economic bubble that forms around it. For example, in the 90’s and early 2000’s when the internet was just taking off, a number of tech-companies got caught up with the “dot-com bubble” of the time — which led to them being grossly overvalued and hyped.
(ii) Risk Mitigation is of Extreme Importance:
When it comes to the investing in volatile commodities, it is of utmost importance that buyers are taught about different risk management techniques that can help them navigate though nascent economic terrains— especially during times of a market downturn.
In this regard, there are a number of unique techniques that can be used by investors such as:
- Amount of leverage used
- Making use of stop-loss mechanisms
- Amount of volume used
(iii) Confirmation of the Dow Theory:
The altcoin market’s rise and fall over the course of the past couple of years seems to have been in line with the Dow theory that aims to illustrate how “trends in the stock market form as well as how reversals start”.
To be even more specific, we can see that the theory clearly outlines three unique phases that constitute major trends within an existing market. These include:
- The initial accumulation phase where enthusiasts procure the asset.
- This is followed by a public participation phase where a lot of hype is generated around the commodity in question.
- Lastly, there is an excess phase where the market starts to slowly collapse and lose some of its value.
(iv) The Global Crypto Markets are Synced With Each Other:
Many of our readers may recall that all through 2017 when the price of Bitcoin was rising, many other crypto assets too witnessed a tremendous surge in their intrinsic values. This was due to a number of reasons such as market pressure, increasing hype, FOMO etc.
In addition to all this, it is also worth adding that a lot of people did not even know what they were getting themselves into when they decided to purchase massive sums of BTC. As a result of this, when the market finally reached its saturation point and started to fall, a uniform downtrend was witnessed for nearly all of the cryptocurrencies across the board.
(v) The Market is Full of Pyramid Schemes and Scams:
There is no denying that the crypto market is replete with a number of amazing digital offerings that have the potential to change the way in which the global economic engine works. However, at the same time, it is also worth remembering that during the 2017 market boom, this sector was flooded with a number of tokens and other digital offerings (cough cough ICOs!!) that had little-to-no real world use cases associated with them.
(vi) Due Diligence is of Utmost Importance:
One of the biggest takeaways from the 2108 market crash is that before investing in any new financial offering, it is of utmost importance that investors do their homework and learn about what they are getting themselves into. For example, when BTC was rapidly scaling up the price charts, many analysts were saying that the flagship cryptocoin was on its way reaching the $250K mark soon— a proclamation which led many people to blindly invest in BTC without doing their fair share of investigation and research.
(vii) It's Not Easy to Trade Digital Tokens via Conventional Exchanges:
For investors looking to “trade the price of cryptocurrencies without having to care about holding the actual asset”, a traditional crypto exchange might seem like one of the more unappealing options out there. Instead, today there are quite a few forex brokers that allow their clients to procure CFD’s as well as a number of other novel crypto-financial offerings.