While many of the challenges cryptocurrencies faced in 2022 were compounded by global economic headwinds related to high inflation rates and the fallout from Russia’s war in Ukraine, many other projects failed due to a severe lack of foresight from part of their owners.
After the bull run furore of 2021, the reputation of cryptocurrencies has been marred by scams, Ponzi schemes and a lack of sufficient investor protection. However, as prices improve and new optimism hits the market in 2023, here are five essential actions that need to be taken to ensure cryptocurrencies learn from past mistakes.
1. Smarter regulation
One of the most significant lessons learned from 2022 has been that there must be a synergy between decentralization and regulation that protects investors.
The high-profile crash of a major exchange, FTX, was a damaging event for investors and the crypto ecosystem. As rumors spread that the exchange was in trouble, FTX struggled to find liquidity to cope with the masses of investor withdrawals.
In the following days, FTX claimed to have been hacked by someone using “on-chain spoofing” to steal $500 million worth of cryptocurrencies from wallets.
FTX’s fall wasn’t the only high-profile crash in 2022, with other projects like LUNA, Celsius, and BlockFi causing investors to lose their wealth and confidence in the market.
With this in mind, if cryptocurrency is to go mainstream, the landscape needs to be more effectively regulated. While decentralization is a core tenet of cryptocurrency and close to the hearts of the industry’s biggest investors, regulatory measures must evolve to protect the interests of all users if you are serious about reaching a mainstream audience.
2. Learn from the mistakes of the last bull market
2023 has started with a new wave of optimism in the cryptocurrency market. The rallies have pushed both bitcoin and many altcoins higher, with many hoping to see a similar price rally in 2021.
As we can see from the CoinMarketCap chart above, investor optimism in 2021 has seen the total market capitalization of the cryptocurrency reach nearly $3 trillion. While there is still a long way to go before this level is emulated again, it is essential that more is done to ensure investors are not exposed to the mistakes of the latest bull market.
Towards the end of the 2021 bull market, investors were increasingly looking for new assets to buy in the hopes that they could achieve exponential growth. It is this rush to buy new assets that has seen the rise in popularity of meme coins like Dogecoin and Shiba Inu.
While buying a featureless asset isn’t a bad move, investors depend on the meme, gathering momentum as a source of income.
In addition to the meme coins, we have also seen several small-cap Ponzi schemes and tug-of-war shots. For example, owners create a cryptocurrency by holding a significant volume of the asset, allowing them to fraudulently “pump and dump” its price before letting other investors hold worthless crypto when they sell their stake.
As we look to put the cryptocurrency winter behind us and embrace a new era of optimism, there needs to be a more comprehensive vetting process for new assets entering major exchanges.
3. Improve the investor experience
Another key drawback of the industry revolves around the investor experience when buying, converting and selling cryptocurrencies. For die-hard enthusiasts, market pairs and execution of withdrawals through third parties can be second nature, but these processes can put off new users.
The next bull run will be built on a wave of mainstream adoption. Today, cryptocurrency is everywhere, sponsoring major events and marketing directly to millions of individuals.
Data from Chainalysis shows that while cryptocurrency marketing is more prevalent than ever, adoption rates declined in 2022, suggesting persistent barriers to adoption. To make cryptocurrencies as accessible as possible, the investor experience on exchanges must be smooth and reassuring.
To welcome more investors in 2023, exchanges must feature new learning resources to help build new trust among users.
4. Continue the push towards carbon neutrality
Environmental issues are more important than ever, and rightly so. After Elon Musk (allegedly) caused a Bitcoin crash in 2021 following tweets expressing concern about the cryptocurrency’s carbon footprint, the cryptocurrency mining problem has rarely gone away.
Today we are seeing both BTC and ETH making efforts to reduce their respective carbon footprints and these initiatives need to grow across the ecosystem.
As sustainability continues to present itself as a pressing concern across a variety of industries, the spotlight will be on cryptocurrencies’ carbon footprint more than ever in 2023. pledge to earn investor trust.
5. Influencers need to take more responsibility
Some of the biggest losses experienced within cryptocurrencies come from inexperienced investors who blindly follow the ads posted by influencers. There are countless examples of celebrities and social media influencers promoting assets in thinly veiled advertisements, which only spread mistrust among newcomers to the market.
Many cryptocurrency projects use social media to build influencer advocacy in hopes that new investors will buy their assets. In some cases, influencers paid by these cryptocurrency projects have no idea about the protocol and blindly broadcast advertisements with the thinly veiled #ad hashtag as a disclaimer. There is little difference between these reckless “advertisements” and the active crypto shilling.
However, the content seen by the influencer’s followers can be misleading and sensationalized to the point of making an #ad hashtag insufficient. With this in mind, influencers need to embark on crypto advertising campaigns with greater levels of accountability for their followers. Otherwise, they risk impacting the financial health of their community and the credibility of the cryptocurrency industry as a whole.
Cryptocurrencies need to learn lessons from the past
As we enter a new year for the cryptocurrency ecosystem, it’s becoming more pertinent than ever for the industry to learn from the lessons of the past. While asset prices have been on a steady upward trend lately, its reputation among would-be adopters could hinder its progress throughout 2023.
Learning from past drawbacks, we can be reasonably optimistic that we have a bright year ahead for the cryptocurrency landscape, but only if we see a greater level of accountability, sustainability measures, and sufficient regulation.
