Anyone who follows financial markets has seen the volatility in asset classes across the board recently - crypto most definitely included.
Even for seasoned crypto investors - those who know and appreciate the cyclical nature of these markets - these can be worrying times, and undoubtedly portfolios have taken a hard knock.
Amidst the general turmoil, you may be wondering: what the heck is going on and how do I protect myself from the worst of it?
Rest assured, the whole Zumo team is here for you at this challenging time in the market.
Up market or down market, we’re here to support and help you in your financial journeys. That mission hasn’t changed, and nor has our conviction in crypto.
As economic woes hit the markets - and our personal finances - here’s our quickfire FAQ on the current market environment and what to take away from it.
Why is crypto crashing?
Unfortunately, for much the same reason everything is crashing: a nasty cocktail of wider economic factors that has forced interest rate hikes to combat rampant inflation; reversal of central banks’ quantitative easing policy (think money gradually sucked out of the system rather than fed in) and a worsening economic outlook that includes looming recession warnings, slowdowns in housing markets, a consumer squeeze and the early signs of employment lay-offs.
These tighter monetary and overall economic conditions mean a lot of people selling crypto, and therefore the downward pressure on prices.
Selling can be for a variety of reasons, whether it’s a deliberate strategy to de-risk in the current ‘risk-off’ environment; a panic reaction to falling prices; or forced selling, where holders have to sell assets to meet another debt or obligation, all of which can form rapidly spiralling negative feedback loops.
Is it time to panic?
Crypto has come through similar downturns several times in its history, though of course nobody can predict what will happen in this particular case.
Given the trend of the overall economic headwinds, it would be wise to at the very least be prepared for these market conditions to continue for a significant period of time. Perhaps the best question to ask is which assets can survive such a prolonged downturn - and will be best positioned at the point of recovery. Both Bitcoin and Ethereum have a track record of weathering past storms such as these, and this is an important part of the reason we carefully select the crypto assets made available via the Zumo app. Given current conditions, it’s wise to review portfolios and consider which projects you have conviction in for the long term.
How do I protect myself?
You may well have seen some rather concerning news recently about platforms such as ‘crypto bank’ Celsius suspending its customer withdrawals - that’s because more people are asking to withdraw their money than the platform can handle.
To paraphrase an old Warren Buffet quote, it’s only when the tide goes out that you discover who’s been swimming naked. Non-sustainable, overly risky practices covered up during the bull market will be exposed in the bear market, and we’ve had some painful reminders recently of the need to learn and understand the mechanisms of anything you invest in; carefully vet any platform where you give away control of your assets; and for those wanting to keep maximum ownership, always self-custody your funds. Risk management and capital preservation is the name of the game.
On that note, we think it’s important that Zumo is non-custodial, or self-hosted, for those who want it. What that means is that you keep personal control over your crypto assets and can withdraw them or restore them in another crypto wallet whenever you want. No blocked withdrawals or asking for permission to get your crypto back - you and only you have digital control over your money. Now is a good time to be evaluating your crypto storage and security, and making sure any providers you go with have robust compliance and risk management practices in place.
Tell me some good news?
Despite everything, things always look better when you pause and zoom out. We’ve just been at Consensus 2022 in Austin, crypto’s flagship conference, and we can see for ourselves all the building going on to deliver the next generation of crypto solutions.
Historically, periods of downturn have been a great time to separate the signal from the noise, see who is here for the long term and position yourself for the next chapter. That’s what we’re here at Zumo to do, and we don’t intend to stop anytime soon. Whether you’re an individual or a business, this is an exciting time to be learning, building and positioning yourself for the opportunities that will come ahead.
This too will pass. Make sure you make the most of it!