• As cryptos receive mainstream attention and break through highs, the focus has shifted to profit-taking.
• New investors are lured to the crypto market without knowing the risks involved in investing or trading cryptocurrencies.
• 2017 vs 2021 Bitcoin dip is a good reminder that the volatility of cryptos also ends in losses.
• While investors maintain high energy about projects, work needs to be done before investing.

Cryptocurrencies have had a blistering run in 2021, reminiscent of the bull run of 2017, which saw the crypto assets like Bitcoin reach new all-time highs. Presently, Bitcoin has an all-time high of $64,863, followed closely by Ethereum at $2,757, with other altcoins breaking the glass ceilings to record impressive gains.

Not Always What It Seems

These gains have not gone unnoticed as they have been picked up and broadcasted by traditional mainstream news outlets, igniting a wave of hysteria around cryptocurrencies. This hysteria is mainly responsible for the burgeoning number of retail traders entering the industry with dreams of making incredible gains and retiring off to a private island like a fairy tale.

Analysts have argued that the oversimplification and gamification of the technology have made lots of investors jump into the pool with both feet instead of understanding the cryptocurrencies and the underlying technology.

While a bit of enthusiasm is healthy, it seems a cross-section of stakeholders has gone overboard with confidence, luring newcomers without the attendant risks involved. The consequences of this oversimplification are pretty dire and have far-reaching consequences for the cryptocurrency community.

The Rise, Fall, and Rise of Cryptocurrencies

The history of cryptocurrencies has been characterized by the sharp rising and fall of the prices of assets. This oscillation has been attributed to the highly volatile nature of cryptocurrencies, with Bitcoin and other assets experiencing rapid changes in prices.

Cryptocurrencies are decentralized digital tokens that can be used as a medium of exchange based on blockchain technology. After Satoshi Nakamoto released the white paper for Bitcoin in 2008, the world has not looked back on embracing the technology with Ethereum quickly developed to cater to the deficiencies of bitcoin in 2015.

Bitcoin and other cryptocurrencies garnered popularity through the years as mania slowly built up. By 2015, we experienced a significant boom in the industry as more people became aware of the technology. This was marked by the incredible boom of Initial Coin Offerings (ICOs) around 2017 and the rapid developments of newer cryptocurrencies that flooded the market. A handful of these ICOs were monumental failures, and newer coins seemed to offer less value than the older crypto assets.

As more people became aware of cryptocurrencies, the market capitalization of the entire industry continued to rise. By 2017, the market cap was pegged around $600 billion as the buzz around the industry became increasingly louder. That year, Bitcoin climbed from $900 to new all-time highs of $20,000 amidst sensational reporting of the bullish run by traditional news media.

The novelty of the technology, the opportunity it provided to investors, and the functionalities it offered to people seeking to escape from the shackles of a centralized financial system: all these sensational reasons attracted new users to cryptocurrencies.

Nothing could prepare new Bitcoin holders for the rude shock in 2018 when the value dropped to lows of $4,000 from the previous highs of around $20k. Many traders liquidated their positions, and the losses from the crash in prices running into millions of dollars.

Bitcoin slowly picked itself up, and so did the hype around the cryptocurrency. The buzz reached the crescendo as 2021 rolled by, with bitcoin surpassing previous highs to hit milestones of $60,000 in the first quarter of the year. The market capitalization of the entire industry exceeded the $1 trillion mark and even went as high as a whopping $2 trillion.

This was fueled by widely publicized reports of institutional and corporate interest in cryptos, with Tesla sensationally investing $1.5 billion in BTC.

Closely followed by Tesla were MicroStrategy and Galaxy Digital Holdings.  Payment giants like MasterCard, PayPal, and Square decided to provide crypto-based services for their users; their decisions wwere heavily amplified in financial circles by media houses.

Developments in the ecosystem went on at breakneck speed, with the market value of DeFi surpassing $100 billion as many protocols were created around them, such as Uniswap and Chainlink. The growth of blockchain in 2021 will be incomplete without the honorable Non-Fungible Tokens (NFTs) and the excitement it generated in the industry.

Things reached a fervent pitch when Beeple broke the record for the most expensive NFT ever sold with his painting, Everyday: The First Five Thousand Days, which sold for $69 million at Christie’s. The first tweet by Twitter’s CEO, Jack Dorsey, was sold for a whopping $2 million as the NFT marketplace soared in value.

Oversimplification of Cryptocurrencies – A Ticking Time Bomb

The concept of blockchain is a fairly complex topic that takes a bit of mental effort to gain a decent understanding of. However, in a bid to drive support and garner attention for the nascent industry, some platforms have begun oversimplifying the concepts of blockchain and cryptocurrencies.

The stripping away of integral components of the tech because it is deemed too complex may end up hurting the industry as tons of newbies flock to the industry without a proper understanding of the modus operandi of the system.

The industry is in its infancy, and pioneers should be armed with the knowledge before leaping faith into the sector. Like trading or investing in the stock market, investors have to be grounded in the market’s peculiarities or risk the danger of blowing their accounts.

An uptrend cannot continue in perpetuity, and every bullish run will eventually give way to a price correction. This scenario had happened one too many times when investors were riding on the waves of a bullish trend, and a reversal occurs, resulting in the liquidations of position, causing a lot of massive losses.

The crash of 2017 – 2018 saw traders lose millions of dollars as the value of Bitcoin fell to dizzying new lows. The recent price correction of Bitcoin in mid-April, which saw Bitcoin dip from around $60,000 to $51,000, resulted in the liquidation of positions by traders. The values of these liquidations were pegged at over $10 billion and a whopping $1 billion was lost in under an hour.

For beginners without sufficient knowledge of the market, these losses may prove fatal as that will essentially put to death their aspirations from making a profit from the sector. As CNN reported, the NFT bubble may already be bursting, but knowledge of the key concepts will help investors navigate the industry while minimizing their risks.

Cryptocurrencies have been the subject of attacks by fraudsters and cybercriminals. With millions of dollars already lost to these criminals, investors should take all reasonable precautions in learning how to avoid being a victim of fraud. If more people are victims of fraud, it could have the disadvantage of driving away investors into the sector.

To store and access their cryptocurrencies, users will most likely require a private key. This private key is designed to measure security against theft of digital assets, but if misplaced and cannot be remembered, the assets in the digital wallet are lost forever.

Several instances of people lose their private keys and lose millions of dollars worth of cryptocurrencies forever. A valid reason for these losses may be a lack of understanding of how blockchain wallets and private keys work.

On the Flipside

• The list of crypto millionaires has been increasing exponentially, and they are coming from different professions.
• The recent Forbes list included 10 cryptocurrency billionaires.
• The Winklevoss twins and Michael Saylor, CEO of software firm MicroStrategy, were key figures on the list.
• The crypto market is back up. The second-largest crypto Ethereum soared to $2,757 yesterday, increasing its market capitalization to $315 billion.

The Way Forward

It is a veritable fact to assert that the cryptocurrency industry has experienced tremendous growth in the last few months, as shown by the staggering numbers achieved. Bitcoin, Ethereum, and Cardano reaching highs of $64,863, $2,757, $1.56, respectively, the NFT and DeFi breaking records, the creation of Bitcoin ETFs, and the successful IPO of Coinbase bringing the exchange’s valuation to over $100 billion is a testament to the fact that the industry is experience exponential growth.

This growth may be due to the amount of buzz generated and oversimplification of the underlying concepts of cryptocurrencies. While being enthusiastic about a thing is great, it is an even better idea to remain realistic in assertions and projections regarding the subject.
This position will serve the purpose of educating potential investors about the upsides and potential downsides of cryptocurrencies, giving them the requisite knowledge to make informed decisions that will potentially lead to the healthy growth of the industry.