From giving in to FOMO (Fear Of Missing Out) to taking out mortgages on their homes to maximize returns, most people quickly jump into cryptocurrency and lose everything. The problems arise from a mixture of bad timing, ignorance, greed, fear and impulsive trading behavior that always results in financial ruin. Fortunately, this self-destructive behavior is easy to avoid.
Cryptocurrency has been through three market bubbles during its 13-year history, with a fourth bubble expected to occur around 2024-2025. Each market bubble follows a Bitcoin halving event, which occurs every four years and takes several months to two years to “peak”. Once the market has peaked, the crypto ‘bear market’ begins, where the prices of most cryptocurrencies will collapse by over 90 percent, most of which will never recover.
As CNBC and many other outlets covered in 2018, many retail buyers invested everything they owned during the 2017 Bitcoin bull run and the subsequent ICO (Initial Coin Offering) boom that followed. People took out loans and threw their savings into Bitcoin, Dogecoin and other cryptocurrencies, only to lose most of it during the bear market. Many of these mistakes stem from not understanding the irrationality of cryptocurrency, not having an exit strategy, and not knowing how to DYOR.Do your own research“) before throwing their kids’ college funds into a crypto project promoted by a celebrity. People new to crypto should familiarize themselves with the Pink Wojak meme before speculating in crypto, as prices are almost guaranteed to crash after buying, pump after selling and go sideways when holding, a phenomenon humorously depicted by Bizonacci’s YouTube videos.
Never risk what cannot be lost, and never time the market
Cryptocurrency is far riskier than other markets due to a combination of shallow order books, retail speculation, market manipulation, regulatory uncertainty and a lack of real demand for the assets themselves. Most retail “investors” experience the same roller coaster ride as everyone else: go all in during the hype, sell everything at the “peak”, buy back in when prices continue to rise, claim to hold for the long term when prices crash below the entry price, and finally everything loses when the bull market capitulates into the bear market. The biggest mistake is to never take profits when they are on the table, as most people will greedily hold on, hoping to sell the exact top, only to miss it and sell at a loss later.
Retail investors need to understand their honest reasons for buying crypto before making any decisions, whether they jump on the hype rocket to make money or because they want to invest in blockchain technology for a long-term future (or they need to use crypto for a reason) . For long-term investors, all-need cryptocurrencies are the best assets for long-term accumulation, with Ethereum’s gas token ether (ETH) being the best example. Long-term investors use a Dollar Cost Averaging (DCA) strategy, which involves buying a fixed dollar amount of an asset at routine time intervals regardless of price action. It has been the most profitable investment strategy over several years. On the other hand, successful short-term traders favor speculative altcoins and meme coins and pay close attention to price chart formations, news stories, market sentiment and token pre-sales, and must actively manage their positions and take profits when on the table.
Going all-in during a hype wave is the easiest way to get busted, and trying to time the top or bottom to maximize profits never works. Gaining leverage by taking out loans or using life savings is never a good idea either. The most effective strategy to avoid getting broke in crypto is to never buy crypto in the first place, but those who want to try can consider a long-term DCA strategy to accumulate high utility tokens (especially tokens to pay blockchain gas fees) or process cryptocurrency market like a casino and use only disposable income.
Sources: CNBC, CoinGecko, CoinMarketCap, Bizonacci (YouTube)
