For cryptocurrency investors who experienced their first bout of crypto panic in recent weeks — witnessing not only big bitcoin declines but the crash in stablecoins, the collapse of Luna, Terra and fall from grace for Terraform Labs founder Do Kwon — get used to it, according to Blockchain.com CEO Peter Smith.
More pain is coming, Smith says, more risk will be exposed, but ultimately, it’s a good thing for the decentralized economy.
For the crypto investor, he says the lesson of the past few weeks should be back to the crypto equivalent of the traditional market investing concept of dollar-cost averaging — slowly building a position in an asset over time so all your money isn’t exposed to any single bout of volatility.
“Average into it slowly,” Smith told CNBC’s “Worldwide Exchange.”
Bitcoin hit its lowest level since December 2020 earlier this week, under $26,000, and shares of publicly traded crypto brokerage company Coinbase were down by as much as 74% year-to-date this week,
“And you need to be prepared to hold it for quite some time,” Smith added. “Because we’re still in really the nascent period of building this whole finance system out.”
Blockchain.com, one of the most established players in the space, founded in 2011, ranked No. 7 on this year’s CNBC Disruptor 50 list.
Lately, investors have not been patient, with the institutions that had piled into crypto pulling out in droves, making off with considerable gains, and leaving many rookie retail investors left holding the bag, a classic outcome in a market bubble.
“What’s going on in the market is a washout of risk and leverage across the entire global market system, and we’ve certainly felt that in crypto very keenly, especially in the past few weeks,” Smith said. “I’ve been saying for a long time this is going to be a long process of adoption and growth.”
This process will include more destruction in the short term as weaker links in the crypto economy are wiped out.
“What you need to see is consolidation in the market itself as well as the companies serving the market,” Smith said.
I have recently tweeted about “creative destruction” making the crypto industry stronger in the long run, and told CNBC, “There are a lot of companies and protocols and assets where we do need the process of creative destruction to come through the market.”
“I would expect in the next few weeks after this really dramatic pulldown in the market, some of the risks start to be exposed through the economy,” Smith said.
This will include the companies, trading firms and funds that haven’t been managing their risks appropriately being shut down.
“It is going to take a few weeks, if not months, to see the ripple effect of a really brutal two or three weeks for crypto,” he added.
Smith remained the crypto bull, telling CNBC as someone now witnessing their “fourth or fifth” market cycle in the volatile fintech sector, that “every single time it’s been brutal pain on the way in but led to a stronger industry, and more useful industry , and real fundamental growth over the next two to three years that follow.”
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George is Digismak’s reported cum editor with 13 years of experience in Journalism