In 2022, the crypto industry was shaken up by capital flight as inflation emerged and the economic recession ensued. Shady and even fraudulent activities were uncovered at some of the most established companies. Cryptocurrencies that were once considered stable collapsed as a result. So, what is going on in the industry as it pertains to your retirement and investment choices?

An Industry Struggling to Grow Up

Whether you’ve been keeping tabs on the cryptocurrency sector or are new to the game, it’s critical to know how this once-booming industry and once-lucrative investment option—even a portion of people’s retirement portfolios in the form of exchange-traded funds or crypto-focused retirement portfolios—is now crumbling. ^[1]

Inflation caused interest rates to rise, which resulted in a contraction of the economy and a capital flight from riskier businesses and industries, especially the crypto industry. This not only caused the prices of cryptocurrencies and other assets to plummet but also caused illiquidity inside the industry itself. When capital fled the markets, crypto giants such as FTX and Terra Luna were put in a failing position due to their over-leveraging of their assets in unique ways, which was caused by their overconfidence in their own products and companies.

The lesson of the tale is that crypto is not infallible and that it is still young… Many crypto company CEOs, such as Sam Bankman-Fried of FTX, are simply young and do not operate with the prudence and experience of seasoned professionals are approach the structure and financial order of their companies in an idealistic, “imaginative”, but overly risky way.

The State of Crypto as an Investment

Crypto has become a more widespread financial concept, and you may have seen commercials for crypto exchanges or brokerages. You may also have seen advertisements for Bitcoin or other cryptocurrencies and even purchased them as part of your investment or retirement portfolio. The reasons for purchasing these assets vary widely, whether you’ve heard terms such as ‘digital gold’ to indicate stability and intrinsic value, or ‘moonshot’ to indicate a massively profitable investment.

However, as a long-term investment, the truth is that there is no guarantee of safety or returns, especially with a new asset and industry that is still figuring out its own ecosystem and regulation is yet to be solidified. If you have questions about crypto or want to know about other investments that are out there that can achieve what you may be looking for with crypto, call us today.