Sergey Vasylchuk is the Co-founder & CEO of the staking provider Everstake.
As bitcoin (BTC) sunk below the USD 20,000 mark, the panicking voices filled with eschatological fervor seemed to come from around the community. The same USD 20,000 mark that five years ago looked like a pinnacle of cryptocurrency success is now a grim gravestone sitting comfortably over the crumbling pipe dreams of Lambos, luxury yachts, and gambling sprees in Monte Carlo.
This is the very thing that is wrong with this sort of thinking. Those who think of Lambos and Manhattan penthouses will always be on the losing side, no matter what market they live through. To stay in crypto, you must act like a tough entrepreneur in a highly volatile market and think about creating value for the ecosystem, not consuming it.
The market is going through yet another recession, crypto winter, downturn — you name it. Anyone with the slightest idea of risk management knew for a fact that it would happen sooner or later. The bear market always comes after bull markets and vice versa. This is as inevitable as a sunrise.
But was everyone prepared for that? No. There was no proper risk management on the part of too many people and organizations. There are always risks; accepting them means getting ready to see them become a reality.
Let’s take Anchor, a lending and borrowing platform that operated on the failed Terra platform. Too many people were mesmerized by their magical 20% offer ignoring the question of where the liquidity would come from, and never thought about the possibility of an economic attack on the protocol, which eventually happened.
They suffered severe punishment for letting pipe dreams take over their rational thinking.
Those folks on the bull market thought it would be forever as long as new people came along. Have they even thought about how we call business models based solely on the supply of new participants? Or that this supply cannot be endless, and that’s why such business models we know as pyramids or Ponzi schemes always crumble? That’s another example of daydreaming that, I believe, has no place in the market.
The so-called market downturn hardly affects people who build and run their businesses with a complete account of profits, expenditures, and risk assessment. Of course, there was some impact, but I believe we should treat all those events in a neutral or even positive way.
I can hear some of you asking: what’s so positive about people losing lots of money or even jobs? Well, there are many reasons to be optimistic.
Market crashes sober people up. It sobers up those who came to the market looking for a quick buck from speculating or pumping. It sobers up those who live for expectations and pipe dreams. Nearly 75% of the market seems to consist of players of this sort. And this kind of behavior is punishable by reality.
This downtrend happened precisely because people preferred expectations to real life. If 75% of the market expects it to crumble, it will crumble.
That’s how markets work: they just comply with whatever people expect of them. So, first, there allegedly was an economic attack on Anchor where it looked like some cynical whales pocketed nearly a billion from poorly educated lemmings or people with excessive risk appetites.
Those losses dragged dependent businesses down to the grave. At the same time, Celsius found itself ears-deep in the bog because of regulatory attention and risky statements. People panicked out of expectations of loss and started selling ethereum (ETH), which threw the ETH staking market into unrest and upheaval. And there we go—a panic sale.
But again, what’s so positive about it? In a word, this is the natural process of the market getting rid of inefficient players.
It is they who made the market the way it was, so it is the market they deserve in the first place. Those who faint looking at bitcoin price charts have no right to stay in the market. If you start working with crypto, you must ready yourself for downtrends and market downturns, just as you should be prepared to have your leg broken if you are serious about skydiving. If you are not serious about it, frankly, you shouldn’t get into it in the first place.
This downturn drives useless profiteers away. It drives away those who got lucky to make some money but then proclaimed themselves financial messiahs and gurus. It will kill off startups that build their businesses on an endless streak of grants instead of sound business models. This will cause programmers to join real projects with a steady economy, risk management, and true sustainability.
The market will grow again and crash again, and it will be happening over and over again. But with each iteration, there will be more and more efficient businesses serious about making a change, not making a quick buck.
So, if you are serious and prepared, you’ll survive and eventually thrive. If you are not, then what can I say. Serves you right.
I’m not claiming to be right all the time, of course. Nobody’s perfect, and we had our share of failures, all stemming from wrong decisions. But to err is human, and there isn’t a single company that has never made a grave mistake, not just in crypto but in the entire global economy. The trick is not to avoid errors but to make more correct decisions than erroneous ones. That’s what risk management is all about.
It is mathematically proven that those who make many mistakes are more likely to succeed through the sheer number of going through the cycle of erring/learning/drawing conclusions. As long as you are correct more often than you are wrong, your growth will remain steady—an effect known as an anti-hook.
So, of course, I admit to making a lot of wrong decisions. We made too risky investments for our risk appetites. Still, the strategy of expanding the number of blockchains with Everstake presence was the correct one. The mistakes were mainly about the choice of particular blockchains.
One of the most idiotic errors that comes to mind in this regard is the negligence some of us treated solana (SOL) tokens back at the project’s dawn. I told everyone that Solana would be the next big thing, but nobody took it seriously. Still, we got many tokens when we entered their ecosystem and launched a testnet. But since there was this negligent attitude, especially considering the symbolic price of each Solana token back in the day, some tokens were just lost. Others were sold at around USD 1 to cover some testnet expenses. Needless to say, it turned out to be one of the most remarkable instances of lucrum seccans, or lost profit, in my career.
But what is the lesson here? There are two, actually. The first one is that errors are inevitable. The second is that you will survive and even thrive no matter what mistakes you make if your strategy and risk management are sound.
If I were to draw a line under all this, it would be a classic rock quote: don’t fear the reaper. The market will be better off without the high-risk futility brought about by daydreamers, and it will become more robust than before. Seasons change, and crypto winter will inevitably become a crypto spring, followed by a proper crypto summer.
Crypto is not a scam or a pyramid. It has undergone several cycles of upturns and downturns and always ended up stronger and more attractive than before. And it will happen again and again.
Just don’t you forget about proper risk management.
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