How crypto companies respond to market corrections

Cryptocurrency is a highly volatile asset class, making it incredibly unpredictable for entrepreneurs who have built businesses within the industry

Market downturns, reversals and corrections are difficult periods for traders and investors, although the real issues occur for businesses operating within the impact industries.

ICO boom serves as brutal reminder

The cryptocurrency bull market in 2017 demonstrated how much comapnies, who raised millions in Initial Coin Offerings (ICOs), could suffer as their capital depleted alongside a market correction

Last February Coin Rivet spoke to Pillar Project CEO, David Siegel, who revealed the complexities of operating a company during a gruelling bear market.

In 2020 the cryptocurrency market has experienced another correction, with Bitcoin falling from $10,500 to below $4,000 as coronavirus fears sweep across the globe.

Tough calls

Tough decisions are crucial during times of economic uncertainty, which is why Antoni Trenchev, Co-Founder & Managing Partner of Nexo, decided to systematically underleverage by requiring 200%-500% of collateral for client credit lines.

Antoni Trenchev, Co-Founder & Managing Partner of Nexo, a crypto bank that offers instant crypto credit lines said: “With the general market in bearish territory (more than 20% from recent highs), BTC and crypto are in uncharted waters. Even gold, a traditional safe haven, is shaving off nearly 4% today, given this, crypto taking a dive is not surprising. In times of liquidity needs, everything easily convertible gets sold.

“It is the longer term tendencies that will seal the fate of the space as well as how companies and institutions manage the crisis, and also their business. At Nexo we do our part by encouraging systematically underlevaraging by requiring 200-500% of collateral. While current times are hard, it is an opportunity for Nexo to test its strength throughout.”

Market drop temporary

Some experts believe that the recent market sell-off is only temporary and that Bitcoin will establish itself as a safe haven on a macro timescale, which will in-turn provide a boost to impacted crypto companies.

Ross Middleton, Chief Financial Officer at DeversiFi, said: “Traders are pulling money out of Bitcoin to fund their margin calls on other asset classes (equities, commodities etc). Perhaps they think that there will be better short term opportunities to go long other asset classes in the near future.

“There is a general ‘risk off’ approach to all risk assets, including crypto. Bitcoin will show its safe haven credentials over a longer time horizon once this move has bottomed out, or at least prove uncorrelated to other asset classes.”

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