Cryptocurrencies have crashed, bringing their value back to what they were in 2020, and they might continue crashing for a while. In two years, we observed a popular craving that saw most people (including me! I never want to miss a bandwagon) opening a crypto wallet to be part of what looked like the gold rush. For some, who compare cryptos with a Ponzi scheme, the crash was to be expected. Old school finance gurus can finally feel like they can say, “I told you so!”
Yes, there might have been a sea of scams in decentralized finance, and lawsuits are starting to burgeon. Yet, there has also been a flurry of entrepreneurial ventures in this area, with many of them at risk of going down with the crash. For example, the cryptocurrency lender and wannabe bank Celsius Network has stopped all withdrawals. Likewise, the cryptocurrency hedge fund 3AC has liquidated most of its position, and its funders are MIA.
Despite the downturn, many still believe in the potential of the technology to deliver value-added. But the crash can provide essential leadership lessons for both actors in that field and beyond, building upon existing research in psychology and management science.
Overconfidence is an asset… until it’s not.
Overconfidence has been documented as one of the most dangerous biases experienced by entrepreneurs and business leaders. Leaders of the crypto industry and crypto investors, in general, were often labelled as overconfident.
But would we have seen that many creative new business models if there had not been some overconfidence, trust and faith in cryptocurrencies as a tool? The benefits of overconfidence are well researched: overconfident leaders are perceived to be of higher status, are more influential and experience a higher level of wellbeing. But overconfident leaders are paradoxically more likely to become entrepreneurs because of their risk appetite, while at the same time being more at risk of failure because they tend to underestimate those risks in the longer run.
A more fine-grained study published in Organization Science, shows that entrepreneurs believe from some confidence if they can actualize and update their understanding of their chances of success and decide to leave early enough. This perspective confirms that failing fast and often is an excellent combo to produce the proper learning to succeed.
Learning from failure
As stressed in the study previously mentioned, learning is crucial. In particular, failures are particularly fruitful learning experiences. A review of the extensive scientific research on this topic shows that failure learning depends on whether they are opportunities to learn. Meaning entrepreneurs and leaders need to have experienced failure to understand how to learn from them – and in the context of blockchain entrepreneurship, there has not been much turnaround yet.
The current situation is one of the first failure learning opportunities in this field if actors can find the motivation to revisit their business model and persevere. For many, the business potential of blockchain technologies and decentralized finance are still very much intact, even if the recent crash has questioned the current approaches of many actors in this market.
Resilience and the ability to bounce back
A distinct but related characteristic is the ability of leaders and entrepreneurs to motivate themselves to pick up the pieces and move forward after a setback. Resilience is an umbrella term, sometimes wrongly used. An acceptable definition would focus on resilience as the ability to dynamically regain composure after a negative event or external shock. At the core of individual resilience is self-motivation and persistence: one of the challenges here is creating positive expectations about future performance despite the downturn.
In my recent book, I explore how entrepreneurs can “bounce back” after a failure and be more successful because of that failure. One can hope that while the crypto crash may filter out several ventures and actors in the field, it will also create room for new opportunities.
In a context of high uncertainty, it is hard to tell what the future of the cryptocurrency and blockchain landscape will be. But a renewed awareness of the risk associated with those ventures, combined with more resilience and willingness to learn from this downturn, might open up a new era for entrepreneurs within and beyond the blockchain field.
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