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LESSONS FROM 2022 BEAR MARKET

  1. Nothing is “too big to fall”
  2. Not your key, not your money
  3. “Crypto has nothing to do with securities”
  4. Blockchain and its applications are still young
  5. Security is of utmost importance

The crypto market has had a difficult 2022. Many large projects have completely disappeared from the "map" and many large companies with billions of dollars have also filed for bankruptcy. However, the bear market will not last forever, the projects and investors who can survive the most difficult period of the market will be able to draw valuable lessons, which will be a solid foundation for success when a new cycle begins.

Let's take a look at the 5 big lessons learned from the 2022 bear market with BHO Network!

Nothing is “too big to fall”

The year 2022 has witnessed the collapse of a series of companies, investment funds and large projects with scales of billions to tens of billions of dollars. Most of these entities have been considered by the crypto community and investors to be “pillars” and “unsinkable” due to their sizes. However, these "unsinkable" companies, all with the same fate as the Titanic, sank to the bottom of the sea with mistakes worth tens of billions of dollars.

It all probably started with the demise of Terra (LUNA token) and the ecosystem's stablecoin - UST. The project used to be in the top 5 of the largest cryptocurrencies by market capitalization, but within a few days of the UST algorithmic stablecoin losing its peg, Terra completely collapsed, resulting in $40 billion in losses for investors.

As the first piece of domino to fall, Terra's demise had a lasting impact and affected many other major players in the market. Three Arrows Capital investment fund, or 3AC, after losing its $560 million investment in Terra, officially filed for bankruptcy in July. Managing an estimated $18 billion in assets, 3AC is, or at least used to be, one of the leading and most reputable investment funds in the market.

Similar in size to 3AC, Alameda Research is also one of the leading investment funds in the market and has a close relationship with the FTX exchange. Alameda Research, FTX and more than 100 other companies related to FTX exchange owner Sam Bankman-Fried filed for bankruptcy in November. FTX is the world's third largest exchange in terms of trading volume, is valued at $32 billion, and is considered to have the potential to become the biggest competitor of Binance - the world's largest exchange.

Besides Terra LUNA, 3AC, FTX and Alameda Research, many other companies worth tens of billion-dollar have also gone bankrupt, to the shock of the investor community, such as: Voyager Digital, Celsius, BlockFi, etc. All of them show that greed is a double-edged sword, and nothing is "unsinkable".

Not your key, not your money

Although blockchain technology is quite new and revolutionary, the problems faced by cryptocurrency companies are not new: Borrowing money to invest but losing money, and not being able to pay back. Many companies used users' deposits to invest, took advantage of financial leverage, and optimized profits. This strategy is very effective in the bull market, but in the bear market, it is another story. And after they were no longer able to pay users, these platforms locked withdrawals, leaving many investors unable to react. In addition, the blocking of user withdrawals before the bankruptcy on these platforms not only causes great losses of assets, but also affects confidence in the market.

To a lesser extent, in addition to the bankrupt FTX and BlockFi, several other exchanges have also temporarily stopped withdrawing due to “extreme market conditions'' this year, such as Gemini, Zipmex, CoinFLEX, etc. This has also raised concerns about centralized exchanges, and pushed users to opt for a safer method of storing assets - personal wallets. “Not your keys, not your money” - storing crypto assets on a personal wallet is the safest method of storage, and also helps prevent any unauthorized third parties from accessing your properties. Currently on the market, there are many wallet applications that provide a solution to securely store digital assets, and have a friendly and easy-to-access interface that investors can use, such as Trust Wallet of Binance, Metamask, or BHO Network's 3S Wallet.

3S Wallet is a Multichain wallet that allows investors to store and manage multi-network assets on a simple but optimized interface. In addition to security, 3S Wallet also has a customizable, user-friendly interface that helps create the smoothest and easiest experience.

“Crypto has nothing to do with securities”

Crypto and securities have nothing to do with each other - such a belief is spread during the 2021 bull market, that the crypto market will continue to rise thanks to superior technology, new innovations, new applications, and trends that will attract cash flow regardless of the movements of the traditional financial markets. But the reality has proven to the contrary, that crypto has a fairly close correlation with US tech stocks.

Correlation between tech stocks and Bitcoin, Tradingview

Crypto reacts as a risky investment asset to changes in monetary policies and inflation, similar to stocks. The level of correlation peaks in June of the year, and gradually declines towards the end of the year, suggesting that the correlation trend may be temporary, but more or less every investor has gradually realized that crypto is not outside of the financial markets, and there will always be a certain reaction to policy changes that affect cash flows. It is imperative that investors in this market are equipped with knowledge and information on economics and finance to understand what's going on.

Blockchain and its applications are still young

Many new applications of blockchain and crypto have attracted a lot of attention, and at the same time capital, such as GameFi, NFTs, SocialFi, etc., with the hope of becoming a competitive counterweight to traditional applications. However, these applications are still primitive, difficult to access, difficult to apply widely, and the incentive model is not sustainable. For example, GameFi, the most explosive trend in 2021 initiated by the success of Axie Infinity, quickly died out at the beginning of 2022, witnessing a decrease in both investment capital, number of users, and interests in it. The reason is because GameFi products are not entertaining enough, with the lack of aesthetic graphics and poorly designed gameplay making it not capable of competing with traditional games. However, although these trends often heat up and cool down according to the inevitable laws of the market, we can believe that with enough development time, these applications will be perfected, and narrow down the distance with traditional applications.

Security is of utmost importance

Cyberattack damage on the crypto market in 2022 is about $3 billion, the largest of all time, and Ronin Network is the project with the biggest loss - $620 million. Attacks mainly occur on DeFi platforms, which attract tens of billions of dollars in assets locked on protocols, which is why it has become a target for hackers. The reason may be because in a bull market, when excitement is high, companies become more focused on profits, while ignoring security and decentralization. An important factor for blockchain applications to outperform traditional applications is the high security and decentralization that it possesses, so these advantages need to be the highlight to make projects healthier and develop sustainably.

The crypto market always goes through periods of ups and downs alternatively as an inevitable rule of all markets. In bull markets we get great profits, however, in bear markets we get valuable lessons in risk management, capital preservation and security. And it is the lessons learned at this stage that will help us seize and utilize the opportunity to be further optimized in the next cycle, or, at the very least, prevent history from repeating itself.

Published on December 21, 2022

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