Lessons learned from 15 years of crypto

Compared to traditional assets like stocks, bonds or gold, crypto’s presence in the financial sphere is but a speck in time. However, time is just a social construct and doesn’t always serve as a good measure for evaluating the potential or maturity level of any given innovation or development. So, despite its relative novelty, crypto can no longer be considered the new kid on the block.

The cryptocurrency industry was created 15 years ago, with the birth of Bitcoin, and a lot of things have come to pass since then. The market, currently valued at $1.71 trillion, experienced exceptional growth, with new crypto projects emerging all the time and the global number of crypto users increasing exponentially year-on-year. We’ve witnessed record-breaking values, wild spikes and dramatic crashes, scandals, bankruptcies, and odds-defying performances. High volatility has been a constant for crypto assets and continues to pose a challenge for traders and investors, so if you want to find out the current market price of Bitcoin, you have to keep your eyes peeled on live charts to get accurate updates.

All in all, crypto’s history has been a roller-coaster ride so far, and all the ups and downs it has taken us through along the way have also helped us learn a few valuable lessons. So, if you’re tired of reading about price predictions and other forecasts regarding crypto’s potential evolution, most of which fail to materialize anyway, how about doing a recap of all the insights and teachings we can draw from crypto’s eventful existence?

Crypto regulation is key for safety and stability

Back in the day, when the crypto landscape was often compared to a financial Wild West, crypto enthusiasts saw the lack of rules and regulations as a major boon. Digital assets have long been praised for their decentralized nature which allows users to circumvent government controls and take charge of their finances without depending on centralized institutions.

However, the lack of government oversight leaves the door wide open for all sorts of hazards including fraudulent activities, off-the-chart volatility, capital outflows, financial stability and so on, leaving stakeholders in a very vulnerable position. So, although imposing regulations comes in direct contradiction with crypto’s decentralization ethos, governments around the world can no longer afford to ignore the risks and threats posed by an ever-expanding unregulated market.

The events of the latest crypto winter abundantly proved that regulatory scrutiny has become necessary and unavoidable. The industry was hit hard by the $450 billion Terra-LUNA crash and the bankruptcy of the fraudulent cryptocurrency exchange FTX which whipped another $200 billion from the market. In total, the crypto market lost over $2 trillion in 2022 and many investors were left destitute as a result.

These unfortunate incidents have given regulators the push they needed to finally take action and ramp up their efforts to devise clear and consistent laws, standards, and regulations for the crypto market. Although crypto regulations remain a work in progress for the time being, it’s now clear that this is the only way for the crypto industry to continue its development.

The crypto market is not an island

Another misconception that has been demystified over the years has to do with the influence of macroeconomic factors on cryptocurrency prices. It was once believed that since crypto is not subjected to government regulations, its performance is not impacted by macroeconomic factors, such as interest rates and inflation. In other words, decentralization was seen as a shield that kept these influences at bay. In fact, it was observed that for the most part digital assets appeared inversely related to fiat money, so many thought they could serve as a hedge against inflation.

However, this bubble burst when the Federal Reserve was hiking interest rates causing waves in the crypto market. This demonstrated that digital currencies are not an isolated island, floating too far into the ocean for anything to reach its shores. Global events, technological progress and shifts in the financial system can leave their mark on the crypto industry and that can add to its inherent volatility.

Excessive leverage can have a ripple effect

Being a highly speculative investment, crypto traders and investors have always been tempted to use high leverage to maximize their returns. But in doing so they might have taken things a bit too far. The result: an exacerbated volatility that has reverberated throughout the market and played a major role in its meltdown. Excessive borrowing and risk-taking saw the collapse of one company expanding to another, creating a ripple effect that eventually engulfed the entire market.

This is not unique to crypto. The same thing can happen in other financial markets and history provides us with plenty of examples in this respect. When the prices of an asset are going strong end investors are confident in its appreciation potential, leverage increases and when their forecasts don’t come true, everyone starts selling at once, causing seismic shifts in the process.

Projects with no utility have no future

Crypto projects are a dime a dozen, but they’re not all created equal. Over the years, we’ve seen all sorts of crypto initiatives emerge. Some have faded into obscurity while others have kept going. But when a crypto takes off unexpectedly, it can be hard to figure out in which category it belongs.

Take meme coins for example. They came out of nowhere and started putting up massive gains that no one could have predicted. However, it didn’t take long for them to lose their shine and step out of the spotlight. That’s because their rise was prompted by pure speculation and media hype which can’t serve as a solid foundation for a long-lasting project.

This has taught us that it’s important to look beyond the marketing hype when evaluating crypto assets and see if they offer real-world utility that can back their value. That’s what keeps a crypto thriving and that’s what investors and traders should look for when picking their assets.

There are plenty of things we’ve come to learn from crypto’s history and plenty more will probably follow. What’s truly important is to keep up with the industry’s evolution and absorb as much information as possible.