Asset loss
Direct value shrinkage: For investors holding Bitcoin, the book value of their assets will drop significantly as the price plunges. For example, from the evening of November 25, 2024 to the early morning of November 26, the price of Bitcoin plummeted from a peak of about $99,000 per coin in a short period of time, once falling below the $93,000 mark, with the maximum drop exceeding 6%, and the assets of many investors were severely reduced.
Margin trading liquidation: Investors who use leveraged trading will be forced to close their positions when prices plunge if their margin is insufficient, resulting in the loss of all or most of their principal. The price of Bitcoin plummeted from the evening of November 25 to the early morning of November 26, 2024, causing more than 170,000 people in the cryptocurrency market to be liquidated, with a total liquidation amount of up to US$547 million.
The value of related assets has fallen: the value of some Bitcoin-related investment products or companies holding a large amount of Bitcoin will also be affected. For example, MicroStrategy, a US stock, holds a large amount of Bitcoin. When the price of Bitcoin plummeted, its stock price fell by more than 4%, and the US stock price continued to fall by about 4% after the market closed.
Investing Psychology
Panic and anxiety: A sharp drop in prices can easily cause panic and anxiety among investors, who worry about further losses. In particular, those who bought at high prices or used high leverage may fall into extreme anxiety.
Regret and self-blame: Investors may feel regret and self-blame for their investment decisions, such as regretting not selling in time when the price was high, or blaming themselves for blindly following the trend and investing in Bitcoin.
Loss of confidence: The instability of Bitcoin prices will undermine investors’ confidence in the cryptocurrency market and may even cause them to doubt the entire investment market, affecting future investment decisions.
Investment strategy
Adjusting asset allocation: Investors may review and adjust asset allocation, reduce the proportion of Bitcoin or cryptocurrencies in their portfolios, and instead increase the allocation of traditional assets such as stocks, bonds, gold, etc. to reduce risks.
Changing investment direction: Some investors may become disappointed with the entire cryptocurrency market due to the plunge in Bitcoin prices, and thus completely change their investment direction, no longer get involved in the cryptocurrency field, and look for other more stable and promising investment projects.
Long-term investment strategies are challenged: For Bitcoin investors who originally held long-term investment strategies, the price plunge may put them under tremendous pressure, causing them to begin to re-evaluate their investment logic and prospects, or even abandon their long-term investment plans and choose to sell their Bitcoin in advance.
