I know how you feel. Right now you are thinking that everything you have saved is at stake, and you are thinking about bills, your dreams, your children’s future. And all the bad news about cryptocurrencies is following you, your friends are calling you worried, and everyone is talking about the “end of Bitcoin.”
Under such immense pressure, it is natural that you start to question your decisions and consider joining the rest of those who are selling their cryptocurrencies. You think, “This time I won’t make a mistake, I will sell before I lose more.” Let me tell you, the fear of loss starts to control you… and you are now one of the 99% of traders who are ignorant of the basics of investing.
What is panic selling? And how does it happen technically!
Panic selling is a mass selling of cryptocurrencies or markets in general as a result of fear, rumors, or overreaction rather than rational analysis. It occurs when investors interpret an external event as a negative signal, leading some to take the initiative to sell. This selling accelerates as prices fall, prompting other investors to do the same to prevent further losses. To avoid this vicious cycle of fear and selling, exchanges temporarily halt trading when panic selling reaches a certain level.
When investors experience market downturns, they naturally tend to react strongly due to what is known as loss aversion. Loss aversion is the tendency of individuals to feel the pain of a loss more than the pleasure of a gain. In other words, the same financial loss has a greater psychological impact than the same gain.
A study published in the Journal of Behavioral Finance found that individuals are 2.5 times more likely to sell assets during periods of market decline than during periods of stability or growth. This means that fear of loss drives people to make quick and irrational decisions, such as selling assets at a low price, in an attempt to avoid further losses.
However, these decisions often lead to greater financial losses in the long run, because they sell at the wrong time, preventing them from taking advantage of a potential market recovery. This phenomenon reflects how the psychological pain of loss can drive investors to act rashly rather than making decisions based on logic and rational analysis.
Here are some tips and facts to ease your current stress due to the Bitcoin crash.
1- Understand Bitcoin cycles
Market price cycles are of great importance to anyone interested in cryptocurrencies. These cycles, which alternate between periods of growth (bull market) and contraction (bear market), often trigger emotional responses that can lead to selling due to fear of loss, a reaction that poses significant risks in the highly volatile cryptocurrency market.
Bitcoin is known for its sharp declines even in bull markets. A 30% drop is normal. Instead of panicking, see it as an opportunity to buy at a discount. Think of it like a mega sale!
2- Use the Direct Assist Purchase (DCA) strategy.
Imagine you buy Bitcoin every week for $100, no matter what its price is. On good weeks, you buy a little, and on bad weeks, you buy a lot. Over time, you’ll get a good average price. This way you don’t have to worry about timing the market. For example, you decide to buy Bitcoin for $100 every week.
Purchase Accounts
Week 1: 100 ÷ 70,000 = 0.00143 BTC
Week 2: 100 ÷ 60,000 = 0.00167 BTC
Week 3: 100 ÷ 50,000 = 0.002 BTC
Week 4: 100 ÷ 40,000 = 0.0025 BTC
Total amount of bitcoin
0.002 + 0.0025 + 0.00167 + 0.00143 = 0.0076 Bitcoin
Weighted Average Price
400 ÷ 0.0076 ≈ $52,632
The important point
Even if you initially bought at $70,000, which is high, your DCA strategy reduced the average purchase price to around $52,632. This means that if Bitcoin rises to $53,000, you will be in a profit sooner rather than waiting for $70,000 to make a profit.
If you had stopped investing after the first purchase at $70,000, your need to make a profit would have required the price to rise again to that level. But thanks to your consistent strategy, you were able to lower the required profit level.
3- Do not invest more than you can afford to lose.
This is a golden rule. If you only invest money you can afford to lose, you will be less likely to panic when the market hits lows. And more able to withstand prolonged declines if the market forces you to.
Remember, the wealth makers in the cryptocurrency market are those who are patient, learn, control their emotions, and follow a clear investment plan. Don’t let fear drive your decisions. Instead, follow a well-thought-out strategy and prepare for the long journey. Over time, you will find yourself more confident and able to handle market fluctuations calmly and wisely.
To combat this, setting clear, long-term investment goals becomes essential. These goals should be based on a comprehensive understanding of the market and the specific cryptocurrencies in the portfolio. Research from Fidelity and Satoshipedia Investments has shown that investors with clear goals and a defined time horizon were significantly less likely to panic sell during downturns, highlighting the importance of a disciplined approach that prioritizes long-term gains over short-term reactions.
