The Crypto Space Needs Value Investing

In recent weeks crypto markets have been pummeled by accelerating capital outflows as the broader industry is shaken to its core. The Luna/TerraUSD depeg of early May initiated a negative feedback loop that has seen major coins like BTC and ETH plunge in value, leading stablecoins waver from their algorithmic pegs. Meanwhile, major firms like Celsius Network, 3AC, and Voyager taking drastic measures in response to rising illiquidity amidst the panicked pullout of billions of USD in assets. The collapse of major institutional players has initiated a negative feedback loop of illiquidity and uncertain investor sentiment that has pushed BTC below 20k and ETH briefly below 1k.

In response to the dramatic pullback of crypto markets in 2022 and the corresponding uptick of FUD (fear, uncertainty, and doubt), its well past time crypto investors began exploring alternate investment strategies and outlooks. In this regard, a lot can be learned from the discipline of value investing.

Sometimes, it's important to learn lessons the hard way. Since the k-shaped recovery of the global economy kicked off in 2020, trillions of dollars have flowed into the crypto industry that reached all-time highs in late-2021. However, the near-total absence of regulatory frameworks or governmental oversight as well as a major inflow of new investors to crypto and traditional capital markets alike has created an investment landscape populated by inexperienced and (primarily young investors) that rewards high-risk high-reward behavior.

Today’s crypto space is fueled by speculative projects–from altcoin ICOs to NFT drops and metaverse launches–with little in the way of independent due diligence, transparent reporting, or underlying value. The result is what we are watching unfold presently, namely the rapid collapse of the house of cards that more than one leading crypto company turned out to be. This hard fact raises an important question: where does the crypto market go from here?

In order to transform the crypto industry into a place where individuals, businesses, and institutions can confidently store and accrue wealth, the global crypto community is in need of a paradigm shift towards a more conservative investment culture that places a premium on stability and long-term viability rather than the all-or-nothing approach that dominates the space today. In this sense, crypto investors have a thing or two to learn from an investment philosophy that occupies a privileged position in traditional stock markets, namely “value investing.”

Value investing places an emphasis on the underlying value of a company rather than its hyper growth-prospects or other more speculative considerations. According to Investopedia, “Value investors use financial analysis, don't follow the herd, and are long-term investors of quality companies.” This characterization stands in stark contrast to the to-the-moon or bust mentality that has been embraced by many crypto investors.

So how does this approach to investing apply to crypto rather than traditional equity markets? First of all, it means assuming a long-term outlook driven by sustainable growth and manageable risk. It means investing in crypto companies that provide real utility or proven use cases rather than a speculative pipe dream. It means performing due diligence before investing a cent in order to ferret out the rug pulls and ponzi schemes that have tainted the space of late. It means exercising independent decision making rather than following the herd’s call to pump one coin over another. Ultimately, value investing means selecting and investing in crypto companies and their associated coins that provide in-demand goods, services, or technologies that have intrinsic economic value.

As crypto markets and investors come to terms with ongoing meltdown, the future viability of the industry as a whole demands greater accountability, greater transparency, and the prioritization of real added value over get-rich-fast schemes. Value investing provides a way forward defined by responsibility, transparency, and long-term wealth accumulation–all of which stand in stark contrast to the state of the market to date.