What to do during the collapse of the crypto market?

June 20, 2022

In mid-May 2022, the global crypto market collapsed once again. Many ordinary investors are perplexed and don’t know what to do next. We tried to figure out what was the reason for such a dramatic collapse and how to make money in conditions of uncertainty. We try to find future growth points in a partner article with Lucinda Lam, Head of Communications at Bybit cryptocurrency exchange.

Why did everything collapse?

May 2022 will go down in the history of the crypto market as one of the fastest collapses in its history. On May 12 alone, the market collapsed by more than $200 billion in one day.

This happened against the background of the TerraUSD (UST) stablecoin falling in price. Stablecoin is supposed to be a stable coin, which is pegged in price to the U.S. dollar. But the attack on TerraUSD by speculators caused a domino effect, and the creators of the token had to spend $2.9 billion in bitcoin (BTC) overnight to support their currency. But to no avail.

By May 17, the market had stabilized at around $30,000 per bitcoin. But the culprit of the overall decline, UST, is all but destroyed. According to Lucinda Lam, despite the current uncertainty, judging from last years’ experience, the cryptocurrency still has a great future:

«2021 was a good year for cryptocurrencies – with significant growth in market value and an increasing global user base. The number of cryptocurrencies available globally has also increased. We can expect this trend to continue, as cryptocurrency trading is one of the defining trends in financial markets».

Should we panic?

Lucinda’s words are confirmed by statistics. Long-term investors (so-called holders) don’t seem to be panicking. As of today, 65.1% of BTC turnover is accounted for by holders who hold their bitcoins for one year or more. 

Moreover, the top 100 holders of bitcoin wallets took advantage of the falling price and even bought 17,389 BTC (that’s about $522.3 million) during May 14-15.

The second most important indicator of the state of the crypto market is the current hashrate, a measure of the difficulty of mining coins in the blockchain. The higher the hashrate, the more resilient the bitcoin network, and it has reached a new all-time high – meaning that more resources than ever have been thrown at mining new bitcoins. And that’s against the backdrop of the Fear & Greed Index dropping to 12 points as of May 18, a record low since 2020, which means extreme investor fear.

What do all these indicators mean? That small investors sell cryptocurrency in panic, while large investors continue to accumulate it. A typical example of big investor behavior was shown by the president of El Salvador, who took advantage of the market crash to buy 500 BTC for the country.

Nevertheless, Lucinda Lam suggests that everyone remain cautious and investigate alternatives before investing:

«The starting point of any investment is to do your own research. We recommend collecting as much information about cryptocurrencies as possible before investing: what is the purpose of the token? Who are its founders and developers? Look at other parameters as well, such as total blocked value (TVL), circulating supply, market capitalization and market ranking».

What are NFTs and meta-universes interesting about?

If you are not ready to take a risk now and buy cryptocurrencies at the bottom of their value, as large investors do, there are other ways to make money.

A great success in the NFT market recently achieved a project Otherside – a meta-universe from the company Yuga Labs, where all the heroes from the popular NFT-collection Bored Apes Yacht Club are collected in one place. The project immediately brought the creators more than $300 million from the auction and additionally generated another $300 million from resale. And while crypto investors panicked, the creators of the project released a video with new gameplay and website, which again caused a huge wave of interest in the topic.

According to Lucinda Lam, people like to think that NFT trading is a new phenomenon, but in fact, collecting is not something new at all, it is «an old game that is moving into the digital world». And since bitcoin is a digital asset, NFT is just a natural step in the digitization or tokenization of various assets.

Meta-universes can affect how the value of everyday human actions is perceived:

«As far as the meta-universe is concerned, it’s very promising because we can now access digital experiences. The value of the real world can be increased by influencing how people work, play and transact every day, and potentially change the way we approach the future».

What is an exchange token and why invest in it?

Another interesting and undervalued direction to invest in turbulent times is buying tokens from major exchanges. As a rule, in this case, you buy a token that is somehow tied to the profits of the cryptocurrency exchange. A typical example of such a token is Binance coin (BNB) from the large exchange Binance. If you are interested, you can learn more about this token. It is important to understand one thing: whether the market is falling or rising, the crypto exchange always earns on commission, and that is the uniqueness and profitability of its position.

Bybit decided to take a more interesting path in this regard and participated in the development of DAO (Decentralized Autonomous Organization) – a blockchain autonomous system that is managed by software code and doesn’t depend on human intervention – a decentralized autonomous organization.BIT token holders on the Bybit exchange can invest in different products, as well as participate in new project launches and the distribution of new tokens.

Lucinda explains how it works:

«BIT is a management token for BitDAO, one of the world’s largest  DAO, which empowers web3 organizations and allows token holders to vote on technology development proposals. Bybit contributes millions of dollars of treasury assets to BitDAO every day».

According to Lucinda, BitDAO is set to become a major and influential player in the decentralized tokenized economy. At the same time, the vision and mission of the organization will be determined by token holders, contributors and community leaders. That is, they will «build their own adventure».

What should professional traders do?

Volatility is a real horror for a beginner trader, but an interesting opportunity for a professional. There is even such a notion – trading volatility. And the best tool for this is options.

Imagine you want to make money not on the fact that you guessed the direction of an asset’s price movement, as most people do, but on the volatility – the movement itself. It doesn’t matter which way – down or up. This is the so-called straddle strategy, which is usually implemented on the basis of options. And cryptocurrencies provide an ideal market for this strategy because of their volatility.

What’s convenient – buyers don’t have to close the deal. Expiration of option contracts – the process of completing the circulation of option contracts. The administration of each exchange indicates the closing days in its exchange calendar, in fact, the contractual settlement occurs on the first trading day after the closing date occurs, even without a transaction.

Lucinda Lam explains:

«Trading derivatives is cost-effective, there are lower commission charges and execution fees, and while cryptocurrencies are volatile, derivatives are ideal for reducing that long-term price volatility. But traders should analyze and understand the risks associated with derivatives trading before they start trading».

What should newcomers do?

All of the above options require an initial investment, but what can newcomers with minimal funds do? ? Even then, you can look for interesting entry points into the industry that will allow you to safely earn something right from the start.For example, exchanges often give out bonuses or grants to all newcomers, which you can take advantage of.

Major exchanges are constantly running promotions and launching projects. Users can refer their acquaintances and receive bonuses for doing so.

For new users, there are often reward programs that can be accessed as soon as the client has passed the first level of KYC (Know Your Customer) — a mandatory procedure for financial institutions (banks, exchanges, bookmakers, etc.) to remotely identify their customer — and made the first express purchase, deposit or P2P transaction.

In addition, large exchanges are useful to newcomers because of free educational programs, since beginners usually have more questions than investments.

User satisfaction is very important. Multilingual 24-hour customer support ensures that traders are not left hanging when they need help.