Crypto Crumbles — but Will the Crash Spread?
In today’s Money Morning…it’s a genuine bloodbath…don’t count on this being the end for crypto…bull markets can make you rich but bear markets create lasting wealth…and more…
It may be Friday the 13th, but the big horror show for investors is already well under way.
Crypto markets are reeling this week after panic selling was brought on by the collapse of a stablecoin.
TerraUSD [UST], which is designed to be pegged to the US dollar, began to falter earlier this week. As a result, the price decoupled from the required 1:1 peg and traded as low as 65 US cents at one point.
The fascinating part is that no one knows for sure what caused the implosion. Some suggest that it’s due to comments from the Fed about increased scrutiny of stablecoins earlier in the week, while others believe it was a coordinated attack by malicious traders.
Either way, it has proven that stablecoins can’t always live up to their name.
This naturally caused a market-wide panic about the reliability of the coin. As a result, the value of Terra’s native token — LUNA — has collapsed by 97%. In other words, it is now effectively worthless in the eyes of investors.
Needless to say, this story has now sent ripples through the entire crypto space.
Almost every major and minor crypto coin or token is down double-digit percentages. Even Bitcoin [BTC] has lost roughly US$220 billion in total market cap over the past week.
It’s a genuine bloodbath.
For many crypto investors it will be a tough pill to swallow. If they weren’t invested through the 2018 crash, then this will be their first big test of resolve.
The much bigger question, though, is whether or not the collapse will spread…
Don’t count on this being the end for crypto
First and foremost, don’t expect this event to kill crypto.
In my view, I think this may be crypto’s ‘dotcom bubble’ moment. What I mean by this is that it should (hopefully) be a shakeout of all the bandwagoners, scammers, and insipid speculators.
That’s exactly what the dotcom crash did for tech stocks back in the early ‘00s. It cleared the space of a lot of bloat and paved the way for the best and most innovative projects to prosper.
You can see that today in the performance of stocks like Apple, Amazon, and Alphabet (Google).
Of course, that will mean little to investors who have just lost a lot of money. But that is the risk you take with these speculative assets.
They deliver big gains on the way up, and big losses on the way down.
What matters is where things go from here. Not only for the investors who have lost money, but also the innovators behind many of the ongoing projects.
With that in mind, I don’t expect this rout to spread to stocks.
In fact, I wouldn’t be surprised if many of the bigger crypto coins rebound quicker than many think. Maybe not to the same stratospheric levels as we’ve seen before, or as quickly, but in time I expect a rebound.
I’m sure some people are more worried about whether this implosion is a sign of things to come for stocks. After all, we’re already in the midst of an early bear market — but could we see a proper crash?
Again, I wouldn’t count on it.
This is a reality check for many, that’s for sure. But I’d be surprised if this crypto crash does much more than it already has.
Like I said, this is a chance for crypto to really bring its best ideas and projects to the fore.
Investors, though, whether involved in crypto or not, should think about reassessing in the short term.
Bull markets can make you rich but bear markets create lasting wealth
Every investor right now should be reassessing what their needs and goals are.
The easy gains of recent bull runs are now long gone. Instead, you’re going to need to work harder for your money.
But that’s not a bad thing.
Bull markets can certainly be a quick way to make good money but bear markets can generate truly astonishing wealth. That is, as long as you know what trades to look for and implement a solid risk strategy.
I realise, though, that it can be daunting to dive into a sea of red.
Navigating these more volatile periods is certainly not easy. Hell, even just knowing where to start is often the hardest part.
That is exactly where we can offer help, though.
Now isn’t the time to be sitting on the sidelines. You can’t afford not to be invested.
What you really need is to understand the shift that is occurring in markets. Something that investing guru and legend, Jim Rickards, knows all too well.
He’s seen and been a part of his fair share of structural market shifts — not to mention brushed up on those that came well before him. That’s why when Jim says a major change is coming, you listen. And right now, he is saying exactly that…
You can read all about Jim’s thoughts and how you can invest around them right here.
Because if there is one big takeaway from this crypto crash, it’s that you must always be prepared. Prepared not only for amazing gains when things are booming, but also prepared to play it safe when markets turn to bust.
These big structural market shifts are always going to pop up every few years.
The best thing you can do is use them to your advantage, rather than lose out like the masses.
So if you’re willing to try and make some serious returns, put aside some time to read what Jim has to say. After all, it might be the best investment you can make in our current market climate…
Editor, Money Morning
Ryan is also co-editor of Exponential Stock Investor, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.