Why Graham Stephan Believes the Most Recent Crypto Crash Is 'Different'

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KEY POINTS

  • Graham Stephan is an investor and YouTube personality.
  • He has invested in cryptocurrencies since 2017.
  • He has a warning about the most recent crypto crash and why it is different from previous downturns within the industry.


Investors may want to heed Stephan's warning.

Most cryptocurrency investors are aware that the market has recently crashed. The decline was dramatic, with the total value of the cryptocurrency market falling from close to $3 trillion at its peak to just below $1 trillion.

The market has been volatile before, but some investors believe this time is different.

One of those investors is Graham Stephan, a YouTube personality and a real estate agent who speaks often about saving and wealth building. Stephan recently took to Twitter to share his thoughts on the crash, and his projections for the future of the cryptocurrency industry.

Here's what Graham Stephan has to say about the recent crypto crash

Stephan began his Twitter thread by making clear he's long been a fan of cryptocurrency and that he has had a personal stake in virtual coins since 2017. But while he says he's seen big swings in prices before and recognizes that "ups and downs are part of the market," he thinks this big downturn is different entirely -- and is just the "tip of the iceberg."

Stephan warned that "irresponsible management and leverage have led to a crypto crisis," which he doesn't believe is likely to wane anytime soon for two primary reasons.

The first issue Stephan identified is that cryptocurrency platforms were largely unregulated and they took advantage of this lack of oversight to take loans against customer funds, which they subsequently used as collateral to borrow more.

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The result is that some platforms were so over-leveraged that when customers began to panic sell during the downturn, they had to freeze withdrawals. Stephan blamed this phenomenon for the downfall of Celsius, Voyager, and 3AC.

The second issue Stephan pointed out was "unforced errors" including Celcius hiding hacks and returning millions of dollars worth of tokens accidentally and Voyager providing large loans to 3AC without proper collateral.

Stephan's warning is an important one that investors should heed. It touches upon some of the same issues mentioned by billionaire Mark Cuban, who commented of the recent crypto crash that companies without a solid business model are likely to disappear permanently during the downturn because, "Like Buffett says, 'When the tide goes out, you get to see who is swimming naked.'"

What does Stephan think you should do to protect your money?

In light of the fundamental problems with crypto platforms that Stephan points out, investors who are still interested in this asset class may wonder what they should do to protect their funds while buying virtual currencies.

Stephan offered some advice on this as well. Specifically, he had four suggestions including watching for user-level scams; moving your long-term crypto holdings to cold storage; using multiple different platforms to make crypto investments; and making sure you do not invest any more money than you can afford to lose if things go wrong.

This is solid advice, especially the warning that you shouldn't invest money you're counting on. Finance experts including Suze Orman have also cautioned against making crypto investments with money you cannot afford to lose.

Whether Stephan is right about the underlying issues that will result in continued problems in the crypto sector, it is crucial to keep in mind that the lack of regulatory oversight and the high volatility in this untested asset class makes crypto a more dangerous investment than many others out there. That doesn't mean you should walk away, but caution is needed -- and you should make sure you're putting money into traditional time-tested assets as well.

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