Crypto Crash – Three Things We Learnt

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  • Yesterday’s crypto crash will go down in history as one of the most savage
  • One trillion dollars was wiped off the value of the crypto market in one day
  • What are the lessons we can learn from such events?

Yesterday’s brutal drawdown in the cryptocurrency market was savage as it was unexpected, at least in its intensity. Over one trillion dollars was wiped from the entire market as portfolios were cut by around a third, or worse. As always however there are lessons we can learn from such events, and here are three such lessons we can take away from the chastening experience.

Leverage Trading is Getting Out Of Hand

We have already written about the dangers of leverage trading when used by amateurs, and yesterday was a perfect example. We saw the same in March 2020, and we will continue to see crashes that go far beyond their natural stopping point as long as those without the necessary education and risk management continue to use leverage irresponsibly.

Yesterday’s crash saw over $8 billion liquidated across the major exchanges, and that is money that those individuals are never getting back. Yet no matter how many of these events we see, leverage trading in crypto still lures people in with its promises of huge gains.

Media FUD Lit the Fuse

Mainstream media outlets are already setting the blame for the crash at the door of China reiterating its ban on cryptocurrencies and Tesla’s alleged environmental concerns about Bitcoin. However, this ‘news’ only lit the fuse of what was already a pyre ready to blow – the market was already teetering under the weight of Bitcoin’s rush to $65,000 and the plethora of shitcoins being minted and run 10,000x made it clear that overexuberence was rife.

Any FUD from mainstream media outlets was simply the fuse that lit the fire, and the liquidation cascade did the rest.

We Are Still in a Bull Market

Yesterday’s crash was brutal, and represented a drop some 11% further than what we can expect in a bull market. This has, naturally, caused some to question whether we are in a bull market any longer. The answer is that for the moment, yes we are. Wicks can go as low as they like, and with liquidation cascades that’s what they do, but the daily close was key, and Bitcoin closed above the key level of $30,000.

While Bitcoin remains above this figure we can be confident that, after a period of recovery, the bull market should continue. Clearly however we are not out of the woods yet, so that is the figure to look for on a daily close if we see more negativity.

Crypto Will Recover

Despite the severity of the crash the crypto markets will recover, and we will liley get to a stage where the exact same factors are back in play again…and we experience another drop, potentially the big one next time. Just remember how the market felt up to two days ago and try to learn the lessons from this experience to better prepare yourself for the next inevitable crash. And for God’s sake, don’t trade with leverage.