Why Crypto Might Not Be For You
- , the first cryptocurrency was created as an alternative payment system to the traditional financial system
- However, gains like Ripple’s 36,000 hike () in 2017 have attracted many investors looking to make their first million dollars from just a few hundred dollars.
- Short investors lost up to $ 26 billion at height of GameStop (NYSE 🙂 saga and $ 172 billion after Bitcoin first crossed $ 35,000 in January
- The most recent drop that took Bitcoin to a new monthly low has liquidated the holdings of more than 580,000 investors
- Crypto is not for everyone! In fact, some believe that only masochists are supposed to be successful in the crypto market.
More than ever, cryptocurrencies are gaining popularity among new investors. One of the main reasons for this popularity is the opportunity to gain prominence by investing in cryptos. While people are treated with the stories of those who have made billions with cryptos, the masses who lose their investments are barely publicized.
In 2008, the white paper on the first cryptocurrency, Bitcoin, was published by the unidentified entity, Satoshi Nakamoto. The purpose of Bitcoin was to provide the masses with a more efficient way to send money across borders – over the internet.
Bitcoin’s original intention was to be an alternative payment system that would be decentralized (operate without central control), but still remain relevant, just like traditional currencies. They would not rely on banks or third party confirmation.
However, today the focus of the crypto market has changed; now is how to make a fortune in the shortest possible time. Crazy skyrocketing prices like Ripple’s 36,000% XRP hike in 2017 and NEM’s 29,842% ROI are those that are stealing the headlines.
Crypto investors now intend to turn their $ 100 or $ 500 into $ 1 million. Projects that deliver massive profits have become the interest of investors, rather than those that solve real-world problems with blockchain technology.
While there are projects with real use cases that are seeing such a price hike, there are very few and hard to find. Pumping and dumping projects are more likely to reach stratospheric digits than real crypto projects.
As more and more members of the general public discover the possibility of making money with crypto through social media, the truth is, not everyone will benefit.
Data from Bitinfo reveals that 76% of all Bitcoin addresses are home to less than 0.01 bitcoin and 97.54% have a balance below one Bitcoin. At current prices ($ 54,400 per coin), three-quarters of Bitcoin addresses are worth just over $ 544.
One of the most recent examples of a massive public interest in financial holdings is the GameStop saga. While the Reddit Army managed to shut down Wall Street for a while, financial analysis firm S3 Partners reported that short sellers lost nearly $ 13 billion on GameStop alone; at one point, losses reached $ 26 billion.
More recently, the drop that sent Bitcoin to a new monthly low resulted in the liquidation of more than 500,000 investors, with the global crypto market losing around $ 300 billion in market capitalization.
The largest liquidation order took place on Huobi-BTC worth $ 11.28 million. At this point, it’s obvious that cryptos aren’t all about profits and mooning. The majority of investors risk liquidation instead of walking away with their first million dollars.
On the reverse
- Unlike untold stories of investors in the crypto industry, the majority of investment advice suggests that every investor should add Bitcoin to their portfolio.
- Optimal Investor Portfolio Should Include At Least 6% Bitcoin, Yale Study Says
- Likewise, in January, leading investment bank JP Morgan released a report stating 3 major reasons why every investor should add Bitcoin to their portfolio.
FOMO: the bane of every crypto investor
One of the main reasons people end up with losses is fear of running out (FOMO). Investors hear that others make hundreds or thousands of dollars on an asset and are forced to make the investment, just to earn their share of the profits. Most of the time it ends badly.
Greed is another emotion that has destroyed thousands if not millions of traders. Traders get greedy when prices soar, entering the market just before its correction.
Most of the investors who lost their money during the GameStop Saga were late investors who were afraid of missing out on the outrageous gains in GameStop stocks.
The same pattern was repeated in January when Bitcoin first broke $ 35,000 per coin. Media attention has prompted some investors to attempt to bypass the main crypto’s profits. However, it did not end well as Bitcoin prices fell sharply over the next two days, causing the market to sweep $ 172 billion.
The same pattern is both self-fulfilling and self-repeated, especially among new investors looking to make significant profits in the crypto market. However, the failure of these investors is not getting as much attention as those who have made it big.
Recently, Susheela (39), a temporary employee of a bank in India, committed suicide after losing all of her money in a Bitcoin trade. Susheela had raised Rs. 10 Lakh ($ 13,430) from investors to trade Bitcoin, to lose everything.
The less publicized dangers of cryptocurrency tell a story: Crypto isn’t for everyone.
Why crypto markets might only be suitable for “masochists”
While this is a potentially aggressive statement, there may be some truth to the claim that the crypto markets are most suited to masochists. Many traders, even those who have been successful with a proven strategy, can attest to having lost money at some point in their journey. The extremely volatile nature of cryptos makes this possible.
The attitude of not giving up under the pain of major losses is not something that every investor or trader develops (or can develop). Perhaps then, the inevitable pain of cryptos is something to embrace.
Many new investors rush into the crypto market expecting the markets to give them quick profits, unaware that the market is brutal. According to trading strategist Rayner Teo, you shouldn’t be a trader if you fall into the following categories:
- You need quick passive income
- You want to pay your debts
- You want to earn money
- You want financial freedom
- You want to make it big in minutes
- You hate your job
- You want to buy a new car, watch or toys
Most people who rush into the crypto markets fall into one or more of the above categories. As a result, many investors end up with losses and exit the markets before reaching their goals. Again, the crypto market is not for everyone.
In a word
There are those who have made it big, just as there are those who have been destroyed by crypto investments. Ultimately, not everyone is cut out for immersing themselves in the world of crypto.
For a long time, the media has portrayed the crypto markets as a place where dreams come true; where investors can turn $ 100 into $ 100,000 in a single investment. This is rarely the case. The crypto market is complex, exacerbated by its highly volatile nature.
As an investor, if you cannot keep up with the highly volatile crypto market, it may just be a warning sign that you are in the wrong environment. Everyone in the crypto market should have a proven strategy, as well as the necessary discipline.
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