5 Valuable Lessons from the 2018 Cryptocurrency Market

2018 was a memorable year for the cryptocurrency market, with many notable topics throughout the year. It must be acknowledged that 2018 was a year full of volatility due to the market crash, which caused the value of cryptocurrencies to lose over 80%. Perhaps the best indicator of the cryptocurrency market is Bitcoin, representing the first and largest decentralized cryptocurrency by market capitalization. From its near $20,000 all-time high, the price of Bitcoin - as well as the prices of all coins and tokens - has sharply declined since the beginning of the year. Due to the intensity of the collapse, many people have theorized that the cryptocurrency 'bubble' has burst or worse, that cryptocurrencies are heading towards extinction. However, this article will examine the potential positive outcomes that can be achieved during this disastrous year. Lesson 1: The Real Volatile Market The cryptocurrency market is extremely volatile and unpredictable. The entire industry is unregulated, creating a breeding ground for scams, Ponzi schemes, and 'money-grabbing' projects. In addition, it is understandable that cryptocurrency exchanges manipulate market prices and trading volumes. And indeed, this market is flooded with illegal activities that you would not normally encounter in traditional investment markets. Insider trading, money laundering, and pump & dump related to cryptocurrencies are normal occurrences. No one can deny the revolutionary nature of blockchain technology, but the negative aspects that come with the cryptocurrency market - as mentioned above - can be quite insane to consider. The worrying part is that anyone can participate in the market because there are very few safeguards. This means that an ordinary person without investment knowledge or even understanding of the technology can get involved in cryptocurrencies and gamble away their life savings. We can learn one or two things from Harold, in the picture below: Lesson 2: No One Can Predict the Market The youthfulness of technology, coupled with the extreme volatility of the market, makes it almost impossible for anyone to predict at what price it will be at any point in time. This is not surprising as traditional valuation models and any reliable predictions about its valuation do not apply to cryptocurrencies. Why? Because cryptocurrency projects are not regulated and therefore may not have any financial reports in the form of cash flow statements, balance sheets, and profit and loss (P&L) statements. Without traditional financial data, it will be difficult to assess and quantify the underlying true value of cryptocurrencies. Anyone can make predictions about the price of Bitcoin for tomorrow or even next year, but there will be no credibility without measurable and proven data to support these claims. The market is constantly flooded with experts and masters making predictions. Almost all predictions are completely inaccurate, whether they are slightly conservative or completely ambitious. Let's take a look at John Mcafee, a cybersecurity expert who has a divisive personality in the cryptocurrency world. He predicts that Bitcoin will reach $1 million by 2020. Some of these predictions are controversial and have no predictive value. Even the most famous Bitcoin forecaster on Wall Street - Tom Lee - has given up predicting the price of Bitcoin after many failed predictions throughout 2018. He wrote to his clients: “We are tired when people ask us about the target price... Due to the inherent volatility of cryptocurrencies, we will cease to provide any timeframe to realize reasonable value.” Lesson 3: High Risk, High Profit Traditional financial theory suggests that the potential profit one can expect from their investment is directly related to the level of risk associated with the asset ownership. In other words, higher risk is equivalent to higher potential profit.

Clearly, cryptocurrency is the riskiest investment you can make because the technology is still quite new, unregulated, and prices fluctuate extremely. Also, it's no surprise to hear about cryptocurrency exchanges manipulating prices in the market. Let's consider the fluctuations of the cryptocurrency market capitalization to understand their volatility:

Growing by over 4,700% in 2017 and then losing over 75% of its value the following year truly made cryptocurrency investment extremely volatile. A risky market like the cryptocurrency market is a double-edged sword; you can make a large sum of money but you can also lose it all. The market crash in 2018 is evidence of the inherent instability of cryptocurrency and is an important lesson for anyone wanting to enter the market. You must be prepared for the risks you face when investing in cryptocurrency. Careful assessment and fundamental understanding of cryptocurrency are important steps in your investment process. Lesson 4: Most Projects Will Fail The golden age of cryptocurrency projects raising hundreds of millions of dollars through initial coin offerings (ICOs) is over, and we can see the consequences. A report found that nearly 50% of token projects are inactive within five months or more. It's even worse for projects that don't report their capital and aren't listed on any exchange, with over 83% inactive after 4 months. These are staggering numbers for the ICO market in general. Here are the reasons for ICO failure:

These numbers are evidence of the hype and frenzy that gripped the ICO market, with no real substance or feasibility behind ICO projects. It was easy to get caught up in the ICO fever in 2017, as the average return for ICO tokens in 2017 exceeded 1,320%! However, the market downturn in 2018 led to the price destruction of all tokens from ICO projects. Most of these newly issued coins even dropped below their initial ICO price. It's no surprise that many people lost a significant amount of wealth in the ICO market. This painful lesson teaches us that the unregulated nature of cryptocurrencies in ICOs requires everyone to participate in a rigorous evaluation process before investing in any project. Lesson 5: Risk Management Is the Key In a high-risk market, it is important that you know how to manage your risk well. Managing your risk requires implementing appropriate measures to reduce the likelihood of losses in your investments and maximize your potential profits. Here are some ways to effectively manage your risk: Diversify: Don't invest all of your net worth in cryptocurrencies. That's like committing financial suicide. Learn about other investment options such as stocks, commodities, and real estate. Different types of assets have different levels of risk; if you're risk-averse, your investment portfolio will mainly consist of safe investments, with a small portion in high-risk assets like cryptocurrencies. Even within your cryptocurrency investment portfolio, educate yourself about your investments in different coins and assets, such as:Base currency: The base currency represents the most widely traded cryptocurrencies that all other coins and tokens are quoted against. They are the largest coins in terms of trading volume, with Bitcoin (BTC) and Ethereum (ETH) being popular base currencies.Stablecoin: A coin pegged to stable assets like Gold and USD. Stablecoins are important because they bring stability in the volatile cryptocurrency environment.Interest-bearing: Money that provides 'dividends' or a fixed interest rate in exchange for depositing your money in a digital wallet. This arrangement is similar to your bank account, where you earn interest on your cash deposit. Interest-bearing is supported by the Proof-of-Stake (POS) consensus mechanism.Cash: Always keep a portion of your cryptocurrency portfolio in cash as a cushion. You never know when you might need cash for living expenses or when it's simply a good time to re-enter the market if cryptocurrency prices are low.Take your profits: Perhaps one of the most important decisions you have to make is to realize your profits over time. If cryptocurrency prices are soaring, don't hesitate to take profits or 'cash out'. This becomes extremely difficult when prices skyrocket and everyone believes that prices will continue to rise indefinitely. That won't happen. That's why taking some profits off the table when prices start to rise is wise. It doesn't mean you sell off or liquidate all your coins, but a portion of them. Having excess cash is always a good thing.Stop-Loss: A stop-loss is an automatic mechanism to sell a coin when it reaches a certain price level, designed to limit the investor's losses if a coin's price goes down or to protect the investor's profits if the price goes higher than a predetermined target price. Having a stop-loss order is an important part of protecting your investments from unfavorable price fluctuations and sudden drops.

Cryptocurrency has come a long way since Bitcoin was introduced in 2008. From a single revolutionary currency capable of disrupting the traditional monetary system, it has evolved into a vibrant ecosystem with over 2,000 different coins and tokens created to address various issues. The innovation and core development of blockchain technology have the potential to disrupt many traditional systems and applications. However, there are many challenges that come with it. The lack of regulation and an immature market have created a risky environment for the public. We can only hope that as the market expands, it will move in the right direction. DYOR! #Write2Earn #Write&Earn $BTC {spot}(BTCUSDT)