Lessons From the 2017 and 2018 Cryptocurrency Market Cycles

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The 2017 entrants in the cryptocurrency industry have now experienced both the immediate bull market and the subsequent downtrend of 2018. As a result, this group of community members is now more experienced and knowledgeable about the general affairs which concern crypto. This may have a positive effect on the entire industry, since participants are likely to make better decisions.

The Great Cryptocurrency Bull Market of 2017

The great bull market of 2017 was the first to receive mass media attention. The crypto market had seen multiple cycles of boom and bust in the past. However, none was on the scale of the 2017 phenomena. Nearly every major news outlet was reporting on the dynamics of the cryptocurrency market. Celebrities were representing various projects from the field, while online crypto forums were growing by the day. The exponential increase in the price of cryptocurrencies and the wide media coverage it received has led to an influx of new people who got involved. While some joined the industry because of the technology, others simply could not resist the money-making opportunity.

The chart below shows the bitcoin price movements in 2017:

Source: www.coinmarketcap.com

Unfortunately, not every new entrant in 2017 was tech savvy or knowledgeable about financial markets. This means that even though many profited from their investments, a larger number of speculators have lost their funds in scams or while day trading. Many investors also lost funds in the numerous exchange hacks that occurred.

Many had to learn the hard way, as the advice from industry influencers mostly fell on deaf ears. For instance, some investors would not have lost large sums on exchanges had they kept their assets in wallets over which they had full control. Others invested way more than they could afford to lose.

Also, influencers like Tone Vays were unable to save many naive investors from losing money in scams like Bitconnect. People kept investing in scams disguised as legitimate crypto projects, in spite of the several episodes of YouTube videos dedicated to calling out and explaining the scams. While some investors genuinely fell for the scams due to their inexperience, others knowingly got involved to make quick gains.

The Extended Downward Trend in 2018 Brought Pain to Many New Entrants

Matters were made worse when it became apparent in 2018 that the bear market had kicked in. This is where the resolve of those who claimed they were in for the long-term was truly tested.  Still, some investors who bought into crypto because they truly believed in technology, convinced themselves that they could withstand a long “crypto winter.” “Hodl”, a misspelling of the word “hold”, was often used to express this conviction.

All hope of a quick rebound was effectively wiped out by July 2018 when the bitcoin price settled around the $6000 level. Eventually, most community members grew bored of the market towards the end of 2018. There was a marked reduction in the level of activity on cryptocurrency subreddits by November 2018. The “sell” pressure was also high, as the price plummeted below 4,000 for the first time in 2018. At this point, the negative sentiments in the community were palpable. Many new investors who thought they could go through a bear market had capitulated and sold.

The chart below shows the bitcoin price movements in 2018:


Source: www.coinmarketcap.com

Lessons Learned

As mentioned earlier, the largest group of entrants into the cryptocurrency community got involved with these assets in 2017. The market is currently at a point where this group has learned from both bull and bear cycles. A cursory glance through posts and comments on crypto related forums also suggests that community members are more “mature” than before.

A recent post by Reddit user u/KnownCoder encapsulates most of the lessons learned in the past two years. First, it is better to buy small amounts of crypto periodically than to buy large amounts due to greed or the Fear Of Mission Out (FOMO).

There is also nothing wrong with taking some profit when prices shoot up. This helps prevent regrets of not selling at the top when prices fall later. This was the case with many investors who continued to hold their crypto assets as prices began to drop from all-time-highs in in December 2017. This, however, does not apply to true long-term holders.

Community members have learned from the numerous cases of fraud and scams in the industry. Fortunately, regulatory bodies like the SEC and CFTC of the U.S have also made it increasingly difficult for bad actors to have their way in the industry. For instance, it is harder for any group of individuals to come out with ICO projects with the ulterior motive of solely making money off unsuspecting investors.

Finally, it can be argued that those who joined the commmunity in 2017 but stuck around throughout 2018 are people with genuine interest in cryptocurrencies. Such individuals are likely to have spent time understanding crypto assets and blockchain technology. It will be interesting to find out the impact a more experienced and knowledgeable community will have on the industry, as the market moves into another cycle.

Image by Vadim Taranov from Pixabay.

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