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With the rising popularity of Bitcoin and other volatile cryptocurrencies, high-risk investors have flocked to the asset class, hoping to profit from the market’s large and abrupt swings. Traders have been riding this roller coaster ride for many years, with the total market capitalization of all cryptocurrencies rising from around $200 billion in 2020 to $3 trillion last year. This year, however, things are looking very different.
The Web3 market lost around two-thirds of its value in 2022, but despite this catastrophic drawdown from all-time highs, cryptocurrency traders are lapping the heavily discounted prices up. According to blockchain analytics firm Glassnode, investor sentiment surrounding cryptocurrencies has never been more bearish, mentioning that various factors made 2022, particularly the month of June, the worst period ever recorded for the world’s largest cryptocurrency.
Volatility isn’t exclusive to cryptocurrency markets, but digital assets are far more accessible than other risky investments. Volatile markets are the easiest places for novice traders to lose money, and it’s crucial to understand how to trade safely, what makes a risky investment worthwhile, and how to define a project’s value.
What the bears taught us
Cryptocurrency markets are considered a largely unregulated space where anything goes, and no one is held accountable. Of course, this isn’t exactly the case, with governments and financial regulators constantly looking for ways to improve how digital assets are traded. However, this bear market has highlighted some of the lesser-known risks of trading cryptocurrencies, especially those which tend to be overlooked by beginner traders.
2017’s ICO mania had already educated the community on the perils of investing in projects without sound fundamentals. However, while Initial Coin Offerings have evolved into the more vetted Initial Exchange Offerings, scams still run rampant in this space. According to a report released by the Federal Trade Commission, since 2021, over 46,000 people claim to have lost crypto worth more than $1 billion to scams.
From pump and dump projects to shady marketing tactics, the lack of universally sound regulation enables scammers to thrive here. However, that isn’t the only way you might lose your money. Cryptocurrencies may be especially volatile, but investing in anything carries some risk.
A report by Immunefi revealed over $670 million worth of losses in Q2 2022, up 52% from 2021’s $440 million in Q2 losses. Many projects aren’t exactly scams but can’t be trusted with your money. Cryptocurrency lending bank Celsius was recently found to be marking customer deposits as unsecured loans, leaving unsuspecting users unable to withdraw funds after Celsius lost customer assets in risky trades.
Last year, Crystal Blockchain reported that crypto worth over $4 billion was lost to exchange hacks, with many smaller exchanges failing to implement the security measures expected from platforms hosting so much value. Blockchain technology was conceived to take control back from financial institutions, preventing any third party from coming between people and their money. Trusting unregulated projects like Celsius that bring centralized banking concepts to crypto has its risks, but so does trusting code.
The recent crash of the Terra UST algorithmic stablecoin was a grave reminder that while people can be incentivized to act maliciously, smart contracts have no allegiance or sense of morality, and can easily be exploited by malicious actors to the tune of billions. UST’s implosion caused ripple effects across the blockchain arena, even bringing the industry’s poster-child venture capital fund, Three Arrows Capital, to its knees.
However, the world of cryptocurrencies isn’t all gloom and doom. Not all exchanges are incompetent, not all crypto banks are fraudulent, and not all code deployed to the blockchain is easily exploited. Crypto was built from an anarchist agenda, but not all projects vote against regulation. Phemex, for instance, a fully regulated cryptocurrency asset management and derivatives platform with over 5 million customers worldwide, believes that regulation might be the only way forward.
Grabbing the crypto bull by the horns
Bear markets can be tough to deal with, especially if you don’t want to cash out. With prices in decline, many crypto investors are flocking to less risky opportunities to profit, and the supply is responding to demand. Undeniably, cryptocurrency markets are still very much based on sentiment. The variety of applications for cryptocurrency is growing quickly, but there is still no simple way to tie various cryptocurrencies to a particular price, making the asset class extremely sensitive to shifts in market sentiment. Additionally, cryptocurrency traders have relatively simpler access to high levels of leverage. Although this makes it possible for savvy traders with less capital to achieve enormous returns, when prices drop, it can lead to a cascade of market-wide losses.
During times of volatility, it is essential for investors to carefully evaluate the market situation and consider safer investment products. Singapore cryptocurrency exchange Phemex has evolved and transformed itself into a full-fledged financial asset management platform. As they noticed demand expanding from a niche of perpetual contract traders to a wider audience seeking safe and convenient crypto investment options, the company reacted quickly. Phemex’s Savings product enables investors to earn interest on their crypto with its Flexible and Fixed Saving Asset Management products. Unlike the competition, Phemex has taken into account that crypto investors need to stay nimble. Phemex recently unveiled a special offer on its Savings product, enabling users to earn up to 18.8% yield on short-term ETH deposits and up to 4.5% on stablecoins.
Founded by a team of ex-Morgan Stanley executives, Phemex offers its users world-class security, growing from a small derivatives trading platform to one of the most popular and lauded cryptocurrency exchanges in the world. Unlike Celsius, Phemex guarantees customers will always have access to their funds, even if markets crash due to unforeseen circumstances, and they’ve held up this promise even through this recent market crash.
Its recent LaunchPool initiative provides users to get higher staking income with various types of cryptocurrencies. Users can also unstake anytime and enjoy hourly payouts.
Phemex’s LaunchPad product also offers industry’s hottest upcoming projects, enabling investors to get in early on great projects with exclusive staking benefits without having to worry about being scammed. While ICOs are often conducted by anonymous teams without any guarantee of commitment, Phemex vets each project listed via LaunchPad to ensure the safety of its customers’ funds. Additionally, Phemex is now approved for operations in Turkey, Lithuania and 48 states in the U.S. The exchange also recently became a member of the Travel Rule Universal Solution Technology (TRUST) and is in progress to be fully compliant with the U.S. Travel Rule.
There are no one-size-fits-all solutions to handling bear markets, and with so much negativity from scams, frauds, and hacks, cryptocurrency investors are looking for the most reliable, low-risk means to grow their wealth. With prominent projects like Phemex pushing for sound regulation, perhaps the next bear market will bode better for both new and veteran investors alike.
Note: Investment in cryptocurrency and crypto assets is subject to financial risk and readers should do their own due diligence. Entrepreneur Media does not endorse any such investment.