Important Lessons From Recent Cryptocurrency Correction: Cornell Professor

Emin Gün Sirer, a Cornell professor and an influential expert in the cryptocurrency sector, stated that investors should only invest in and hold cryptocurrencies which they believe will be used extensively in the future.

Throughout this week, the cryptocurrency market has experienced one of its worst corrections in history. Most cryptocurrencies fell by more than 50 percent, while the price of bitcoin briefly dipped below $7,700. In December, the price of bitcoin surpassed $19,000 so from its all-time high, bitcoin experienced a 59 percent decline in value.

Today, on February 3, most major cryptocurrencies including bitcoin, Ethereum, bitcoin cash, and Cardano recovered. But, the damage has already been done and several investors in major markets like South Korea have went as far as to commit suicide after losing their funds from the recent correction.

The issue with most speculators and newcomers investing in the cryptocurrency market is their mindset to aim for short-term profits by trading cryptocurrencies they do not have strong knowledge about. Often, investors also obtain debt to invest in the market with hope to generate short-term profits.

Sirer stated that daytrading cryptocurrencies and HODLing tokens for short-term profits are both “equally dumb.” As other experts including Andreas Antonopoulos noted many times in the past, investors should only invest an amount of money which represents their understanding of the technology behind the cryptocurrencies they intend to invest in. Sirer emphasized that investors should only hold cryptocurrencies that they believe will be used in the long run.

“Almost the entirety of all prices are based on speculation. It’s all those idiots who rushed in at the same time, who are rushing out at the same time. We have seen the problem, and it’s us. What matters now is what your reaction ought to be. You should only invest in and hold coins which you believe will be used, extensively, in the long run. If you bought coins on a whim, without an investment thesis, based on hype, well, they are pure speculation.”

Evidently, even with the recent drop, cryptocurrencies are massively overvalued. For instance, Dentacoin is valued at $466 million. How many dentists and members of the global dental community are actually using the Dentacoin blockchain network to settle payments or rate clinics? How many users are actually utilizing Tron’s content distribution network and is it enough to justify its $3 billion market cap?

At one point, Tron was worth $18 billion. Dentacoin was also valued at more than a billion dollars. The arrogance of investors and the choice of narrowminded traders aiming for short-term profits created short-term bubbles in cryptocurrencies that are simply not ready to earn multi-billion dollar market caps and millions of active users.

“This is a time to revisit your investment theses. If you cannot answer the question of “who would desperately want to acquire this coin in the future, and for what purpose,” then it’s worth re-thinking your position. At the end of the day, cryptoassets are just like every other asset. You need to have a firm investment thesis, and you should reevaluate it as more information becomes available,” Sirer added.

Featured image courtesy of Shutterstock. 

Joseph Young is a finance and tech journalist based in Hong Kong. He has worked with leading media and news agencies in the technology and finance industries, offering exclusive content, interviews, insights and analysis of cryptocurrencies, innovative and futuristic technologies.