What's causing this crypto crash that has sent so many people headed for the exits? In a word, FEAR.
Fear is often irrational and when people are irrational they take a bad situation and make it worse. That's why so many people have recently decided to cash out of their crypto holdings.
This is nothing new, however. We've seen this time and time again in the traditional investing world. Believe it or not, 2013 and 2014 were crazy times in the crypto space as well.
Why did so many people wait to get into crypto? Why are so many panicking now and selling?
It's a natural human emotion we all have that's called loss aversion. We get more worried about losing something of value than we get excited about something increasing in value. We tend to also get more upset when our sports teams lose than we get happy when they win.
So you bought Bitcoin (BTC) or Ripple (XRP) after everyone else did and now you're "down" significantly. You're wondering what you should do. Well, while it's difficult to process for many, it's actually simple as you have 3 options:
- Sell now so you can stop worrying
- #HODL (hold on to what you have)
- Buy more
Here's what's wrong with the 1st option. Many of the people who are now in the cryptocurrency market are experienced trading professionals. They have a lot of wisdom and money at their disposal which means they already have an advantage over you. They leverage technical analysis chart reading, buy on margin, short futures, and so on and so forth.
In fact, when you buy high and sell low out of fear, you are playing DIRECTLY into their hands. That's exactly what they want you to do. Many create fear to push out the weaker hands just so that they can buy low again. 50% of people on every trade are wrong. You want to sell, someone else wants to buy.
You also have to understand that there are other forces and interests at work here. Now that Wall Street and Big Banks have realized that crypto isn't going away they realize that they need to take action. Even Jamie Dimon, CEO of JPMorgan Chase admitted that he regrets calling Bitcoin a fraud.
Let me ask you something. How did the taxi companies respond to Uber drivers changing their world? Do you think that the old guard at the banks want to see a decentralized system such as Bitcoin uproot what they have had control over for hundreds of years?
What made you buy into crypto in the 1st place? Was it because you thought you'd get rich quick? Did you know that 99% of the people on twitter claiming to drive Lambos from their crypto earnings are lying? Did you truly research what you were buying or were you just following the crowd?
Having said all that, if you're able to see the big picture, then I would recommend holding. I believe in the advantages of crypto and blockchain technology so I'm "long" (meaning I think the prices will go up over time) on Bitcoin and a few others. Check out other articles on my site learncryptoinvesting.com for much more information.
This is just my opinion and not investment advice. Cryptocurrency is extremely volatile and if you do decide to invest make sure you are comfortable knowing that you could lose everything.