Why the Downtrend of the Market is Good for Crypto?

Source: iStock/da-kuk

Sergey Vasylchuk is the co-founder and CEO of the strike provider Everstake

When bitcoin (BTC) dropped below $20,000, the panicked voices filled with eschatological fervor seemed to come from across the community. The same $20,000 that looked like a pinnacle of cryptocurrency success five years ago is now a stark tombstone resting comfortably above the crumbling visions of Lambos, luxury yachts and Monte Carlo gambling.

That’s exactly what’s wrong with this kind of thinking. Those who think of Lambos and Manhattan penthouses will always be on the losing side, no matter what market they live in. To stay in crypto, you need to act like a tough entrepreneur in a highly volatile market and think about creating value for the ecosystem, rather than consuming it.

Market conditions

The market is going through another recession, crypto winter, downturn – you name it. Anyone with the slightest idea of ​​risk management was sure it would happen sooner or later. The bear market always comes after bull markets and vice versa. This is as inevitable as a sunrise.

But was everyone prepared for that? No. There was not good risk management by too many people and organizations. There are always risks; accepting them means preparing to see them become reality.

let’s take anchora lending and borrowing platform that worked on the failed Terra platform. Too many people were mesmerized by their magical 20% offer, ignoring the question of where the liquidity would come from, and never thought about the possibility of an economic attack on the protocol, which eventually happened.

They were severely punished for letting aerial dreams take over their rational thinking.

Those people in the bull market thought it would be forever as long as new people came. Have they thought about what we call business models based solely on the offer of new entrants? Or that this supply cannot be endless, and that is why such business models we know as pyramids or Ponzi schemes are always crumbling? That’s another example of daydreaming that I don’t think has a place in the market.

The so-called market decline hardly affects people who build and run their businesses with a full overview of profits, expenses and risk assessment. Sure, there was some impact, but I think we need to treat all those events in a neutral or even positive way.

Why a market crash is good for the ecosystem

I hear some of you ask: What’s so positive about people losing a lot of money or even jobs? Well, there are many reasons to be optimistic.

Market crashes sober people. It calms those who came to the market in search of quick cash by speculating or pumping. It soothes those who live for expectations and sky dreams. Almost 75% of the market seems to consist of these types of players. And this kind of behavior is punishable by reality.

This downward trend happened precisely because people preferred expectations to real life. If 75% of the market expects it to crumble, it will crumble.

That’s how markets work: they simply meet what people expect of them. So first, there was reportedly an economic attack on Anchor, in which it appeared some cynical whales had pocketed nearly a billion from ill-trained lemmings or those with an excessive risk appetite.

Those losses dragged dependent companies to the grave. At the same time, Celsius found itself in a quagmire over regulatory attention and risky pronouncements. People panicked over the expectation of loss and started selling ethereum (ETH), sending the ETH market into turmoil and turmoil. And there we go – a panic sale.

But again, what’s so positive about it? In short, this is the natural process of the market to get rid of inefficient players.

It’s they who made the market the way it was, so it’s the market they deserve in the first place. Those who pass out looking at bitcoin price charts have no right to stay in the market. If you’re going to be working with crypto, you need to prepare yourself for downward trends and market declines, just like you need to be prepared to break your leg if you’re going skydiving in earnest. If you’re not serious about it, don’t take it seriously.

This downturn drives away useless profiteers. It expels those who were lucky enough to make some money, but then proclaim themselves financial messiahs and gurus. It will kill startups that build their business on an endless string of grants rather than solid business models. This will allow programmers to join real projects with stable economy, risk management and real sustainability.

The market will grow again and crash again, and it will happen again and again. But with each iteration, there will be more and more efficient companies that are serious about making a change and not making a quick buck.

So if you are serious and prepared, you will survive and eventually thrive. If you’re not, what can I say. Is your wages deserved.

Errors are not wrong

Of course I don’t always claim to be right. No one is perfect, and we had our share of failures, all due to wrong decisions. But to err is human, and there is not a single company that has never made a serious mistake, not just in crypto, but in the entire global economy. The trick is not to avoid mistakes, but to make more right decisions than wrong ones. That’s what risk management is all about.

It has been mathematically proven that those who make a lot of mistakes are more likely to succeed due to the high number of going through the cycle of making mistakes/learning/judging. As long as you are right more often than you are wrong, your growth will remain stable – an effect known as an anti-hook.

So of course I admit that I made a lot of wrong decisions. We have made too risky investments for our risk appetite. Still, the strategy of expanding the number of blockchains with Everstake presence was the right one. The errors were mainly about the choice of certain blockchains.

One of the most idiotic mistakes that comes to mind in this regard is the negligence that some of us handled solana (SOL) tokens at the start of the project. I told everyone that Solana was going to be the next big thing, but nobody took it seriously. Still, we got a lot of tokens when we entered their ecosystem and launched a testnet. But since there was this negligent attitude, especially considering the token price of each Solana token at the time, some tokens were just lost. Others sold for about USD 1 to cover some testnet costs. Needless to say, it turned out to be one of the most remarkable cases of profit cuts or lost profit, in my career.

But what’s the lesson here? There are actually two. The first is that mistakes are inevitable. The second is that you will survive and even thrive no matter what mistakes you make if your strategy and risk management are right.

Conclusion

If I had to draw a line under all this, it would be a classic rock quote: don’t fear the reaper. The market will be better off without the risky futility caused by daydreamers, and it will become more robust than before. Seasons change and crypto winter will inevitably turn into crypto spring followed by a true crypto summer.

Crypto is not a scam or pyramid. It has gone through several cycles of ups and downs and has always become stronger and more attractive than before. And it will happen again and again.

Don’t forget good risk management.

Learn more:
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