From Get-Rich-Quick Scheme to Long-Term Game: Understanding the Shift in Crypto Investing
Those who have been following the development of the cryptocurrency industry for a while know that crypto investing was once considered a get-rich-quick scheme. The heightened volatility and speculative nature of the crypto market gave people the possibility to turn relatively small investments into massive gains in a fairly short period of time – even though that also implied facing a high risk of losses. The promise of astronomically high earnings and the illusion of becoming a crypto millionaire overnight drew people in like a magnet, making them ignore the risks, and contributed to crypto’s wild rise.
Things are vastly different nowadays, as the chances of making huge profits fast by investing in crypto are rather slim and becoming increasingly rare. With the dramatic returns that made digital currencies so attractive to traders and investors no longer part of the picture, crypto is now seen as more of a reliable store of value, often being referred to as digital gold, given its presumed ability to preserve wealth over time.
This doesn’t mean one can’t make good money by investing in crypto anymore. Opportunities for considerable returns still exist, but they’re usually found in specific sectors like meme coins, which are driven by virality and volatility. Dogecoin’s rapid growth and the surge in the Pepecoin price demonstrated that there are areas in crypto that could yield outsized profits.
Nevertheless, this doesn’t negate the fact that the tide in crypto investing has shifted when it comes to potential rewards, so let’s see why this has happened.
The irresistible appeal of an unexplored territory
In its early stages, crypto was often described as a Wild West: it was a high-risk, high-reward space with no regulations, low market capitalization, and a lot of untapped potential. Early investors could see 10x–1000x returns because they were betting on a new, unproven, and extremely risky technology.
Now, the crypto market, although still new compared to established asset classes, has matured significantly, being much larger and more institutionalized. With this maturation, risks have gone down quite a bit but so has the probability of earning outsized rewards. Traders and investors have to work harder and longer, and be more astute to achieve big gains under the current circumstances.
Greater regulatory scrutiny
The crypto ecosystem initially functioned with no regulatory oversight. Free from the supervision and rule of state institutions and authorities, and all the complications that come with these controls, crypto allowed for unrestricted experimentation and innovation. This led to the development of many projects that soared rapidly due to hype alone, putting major profits into the pockets of early investors, even though many of them crashed just as quickly afterwards.
In recent years, governments have started developing and implementing strict regulations and policies regarding crypto-related activities in an effort to curtail fraud, money laundering, unregistered securities and other issues that posed a threat to stakeholders.
While the introduction of regulatory frameworks created a safer environment for market participants, it also stifled innovation and discouraged speculation, which were core catalysts for explosive profits. With crypto companies having to comply with all sorts of rules and standards, launching new projects has also become a lot harder.
Growing awareness and literacy
Digital currencies have long ceased to be a new and mysterious concept that made people scratch their heads when they heard of it. When information on crypto was scarce and no one really knew what it was about, many daring individuals were taking chances and investing in whatever coin was popular at the time without thinking about the consequences. Some saw huge wins, while others lost all the money they invested.
In the meantime, the industry expanded, people became more educated on crypto matters, and stopped making random investing decisions. With greater awareness also came greater skepticism. Due diligence is more common among investors, and they are less likely to throw money at unproven tokens without a clear use case. When they come across a project that seems promising, they don’t just jump right in. Instead, they start inquiring about tokenomics, the problems that the crypto aims to solve, the team behind the project, and other details that can help them decide if the asset is indeed a worthwhile investment. This filters out junk, but also means fewer pump-and-dump style profits.
Diminishing marginal returns
The development of the crypto market and the subsequent decline in the returns generated by crypto investments is nothing more than a classic example of the law of diminishing returns in action. This economic principle states that increasing one input in a production process while keeping all others unchanged will eventually lower the output for each unit of input.
In crypto, this means that pouring more resources into a project will reduce returns on investments into that particular asset over time. As digital currencies grow in market cap, they tend to behave more like traditional assets, so a 100x return on Bitcoin at a $1 trillion market cap is mathematically unlikely. Early adopters reaped outsized gains because there was still plenty of room for growth, but new entrants are buying at already high valuations.
Less hype, more caution
If we look back at crypto’s history, we can see that all major bull runs were driven by hype, media coverage, and FOMO (fear of missing out). The present context is significantly different as the hype has cooled, and the public is more vigilant—especially after high-profile failures like FTX and Terra/Luna.
The risk aversion triggered by scandals, hacks, and major collapses shattered investors’ confidence. No longer driven by blind optimism, investors are looking for real utility when searching for tokens to invest in. This leads to a more cautious market characterized by less frenzy, more due diligence, and smaller average gains.
Final thoughts
The days when one could purchase a random crypto token and get rich overnight are long gone, as the market has changed a lot over the years. However, crypto investing is far from being a futile pursuit – it’s merely evolving. To thrive in the current crypto landscape, you’ll need patience, research, a good understanding of macroeconomic and regulatory trends, and long-term value creation by focusing on high-quality projects.
