From giving in to FOMO (Fear Of Missing Out) to taking out mortgages on their homes to maximize their returns, most people hastily jump into cryptocurrency and lose everything. The problems arise from a mix of bad timing, ignorance, greed, fear and impulsive trading behaviors that always result in financial ruin. Fortunately, these self-destructive behaviors are easy to avoid.
Cryptocurrency has been through three market bubbles over its 13-year history, with a fourth bubble expected to happen around 2024-2025. Each market bubble follows after a Bitcoin halving event, which occurs every four years and takes several months to two years before it reaches 'the top.' Once the market has topped out, the crypto 'bear market' begins, where the prices of most cryptocurrencies will collapse by over 90 percent, most of which will never come back again.
As CNBC and many other outlets covered in 2018, many retail buyers invested everything they owned during the 2017 Bitcoin bull run and the ensuing ICO (Initial Coin Offering) boom that followed. People took out loans and threw their life 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 the kids' college fund into a crypto project promoted by a celebrity. People new to crypto should familiarize themselves with the Pink Wojak meme before speculating on crypto, as it is almost guaranteed prices will crash after buying, pump after selling and go sideways when holding, a phenomenon humorously depicted by Bizonacci's YouTube videos.
Never Risk What Can't 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 lack of real demand for the assets themselves. Most retail 'investors' experience the same rollercoaster ride as everyone else: go all-in during the hype, sell everything at 'the top,' buy back in when prices keep rising, claim to be HODLing for the long-term when prices crash below their entry price, and finally lose everything when the bull market capitulates into the bear market. The biggest mistake is never taking 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 jumping on the hype rocket to make a quick buck or because they want to invest in blockchain technology for the long-term future (or they need to use crypto for some reason). For long-term investors, cryptocurrencies that everyone needs are the best assets for long-term accumulation, with Ethereum's gas token ether (ETH) being the best example. Long-term investors utilize a Dollar Cost Averaging (DCA) strategy, which involves buying a fixed dollar amount of an asset at routine time intervals regardless of its 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 have to actively manage their positions and take profits when they are on the table.
Going all-in during a hype wave is the easiest way to get wrecked, and trying to time the top or bottom to maximize profits never works. Acquiring leverage by taking out loans or using life savings is never a good idea either. The single most effective strategy to avoid getting wrecked in crypto is never to buy crypto in the first place, but those who want to try may consider a long-term DCA strategy to accumulate high-utility tokens (especially tokens for paying blockchain gas fees) or treat the cryptocurrency market like a casino and only use disposable income.
Sources: CNBC, CoinGecko, CoinMarketCap, Bizonacci (YouTube)