The financial landscape is in flux, as investors in the cryptocurrency space tackle a number of market headwinds which can cause some apprehension. But finding the right balance between diversification and risk management, can help them forge a path which safeguards their portfolios without stifling growth.
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The financial landscape is in flux, as investors in the cryptocurrency space tackle a number of market headwinds which can cause some apprehension. But finding the right balance between diversification and risk management, can help them forge a path which safeguards their portfolios without stifling growth.
“On top of a crypto winter, the ecosystem is, in some ways, still reeling from the collapse of Terra/LUNA. Losing a top-five market cap valuation overnight spelled out some serious work ahead for the cryptocurrency space,” notes Rich Evans (pictured), managing director, prime liquidity, CEX.IO, “When placed alongside rising interest rates, a pending recession, and the ongoing war in Ukraine, it’s no surprise market participants are feeling anxiety around available capital.”
However, Evans explains the answer to assuaging these concerns lies in striking a balance between portfolio diversification and risk management. It is also critical for exchanges to move toward only listing credible projects. “This way, we can hope to find common ground that combines guardrails and scrutiny with ample room to grow and ideate,” he says.
Market upheaval can also help till the soil and encourage new projects to take off or take root within the ecosystem. It’s a time for companies to transform and take advantage of new opportunities.
“As the global economy continues to respond to rising tensions, and regulators determine their relationships to the digital asset class, companies will be forced to adapt or risk getting outpaced,” Evans outlines, “If history can teach us another lesson, it’s that extraordinary innovation is possible in increasingly tight spaces. Downturns always encourage users to take stock of their portfolios, so it’ll be interesting to see how the market responds when projects start to set themselves apart.”
According to Evans, projects that are building critical Web3 infrastructure, providing an essential service to encourage growth within the ecosystem, or striving to improve interoperability between different blockchains all offer a utility value on top of their actual market price. These are the areas best placed to deliver returns for investors.
“In this way, crypto could stand to mimic the traditional stock markets – where a stock’s value was directly linked to the function its company performed. As the space continues to develop, we could stand to see more emphasis placed on what a project or asset is contributing to the ecosystem to a degree beyond its potential for value,” Evans stresses.
However, although these assets can provide value going forward, market participants tend to gravitate toward factors they can control during periods of uncertainty. Evan details the appeal of this: “One option is pivoting digital assets away from active day trading to more secure methods of accruing value. In that regard, staking has taken a greater role in this recent market downturn, perhaps augmented somewhat by the buzz circulating around the Ethereum Merge. We clocked a marked increase in staking across our individual and institutional products during the most recent bull run, so it’s no surprise we’re seeing users of all tiers take refuge now in reliable rewards.”
