At the time of market collapse and falling prices and decreasing funds and as a result fear prevails in the digital currency market, FUD is a concept that we hear from market professionals. But what is crypto panic? And what are the ways to control it in the digital currency market?
What is crypto panic?
Risk is one of the characteristics of financial markets. No market and no transaction will be without risk and the risk of losing part of the capital. Perhaps the digital currency market can be placed in the category of high-risk and volatile markets. For this reason, controlling excitement in this market will be more difficult than in other traditional markets. For example, the 40% drop in the price of Bitcoin on Thursday, March 22, 1998 compared to March 12, 2020, shows the strange fluctuations of this market compared to traditional markets and the high risk of this market. Naturally, controlling emotions and controlling fear in trading digital currencies and Bitcoin is one of the most difficult tasks, of course, after working in the mine.
What does crypto panic mean?
Crypto panic is an abbreviation of three words (Fear, Uncertainty, Doubt) meaning fear, uncertainty and doubt. This term is used a lot among digital currency market activists. This term is used when information is published on social networks that the reader feels fear and uncertainty about digital currencies after reading it. For example, Warren Buffett introduced the price of Bitcoin as a real bubble. According to many market participants, it is crypto panic and they believe that this opinion has no accurate basis. The main characteristic of crypto panic is its imprecise, unscientific and emotion-based nature.
However, there is crypto panic in the market when people are skeptical about the future of Bitcoin and digital currencies in general and ask themselves if Bitcoin is really digital gold or is it all an illusion? This is a clear example of crypto panic in the digital currency market. Undoubtedly, this feeling exists in the market at the moment. The Bitcoin Greed Fear Index has reached the number 8, which means that the feeling of absolute fear and panic dominates the market. Many people have lost, many have lost their capital and become pessimistic about Bitcoin and any other digital currency. There are people who are waiting to see Bitcoin at $20,000 and some are afraid of further price drops. All these are the emotions that currently dominate the market and are examples of crypto panic, and a successful trader in the digital currency market must avoid these emotions and try not to let these emotions affect his decisions.
How to protect your capital against crypto panic?
The only way to protect yourself and your investment against crypto panic is to raise information about Bitcoin and digital currencies. Neither does the possibility of Bitcoin becoming 300,000 dollars intoxicates us, nor does the possibility of it becoming 1,000 dollars make us lose sleep. We should not wait for a $300,000 bitcoin, nor should we be afraid of it becoming $1,000. Let's look for logical reasons for each of these opinions. If we are afraid of the further fall in the price of Bitcoin and we are afraid of Bitcoin becoming $1000, let's ask ourselves with what fundamental or technical reason will Bitcoin become $1000? If we find a technical and fundamental reason for it, selling it seems to be a logical decision. But if we start selling our assets without a logical reason and only because of the feeling of fear that has arisen in us from the sharp drop in the price or doubt about the market, we have suffered crypto panic. As a professional trader, we must keep crypto panic away from us so that we can make correct and rational decisions.
Knowing digital currencies and their ideas and the team behind it can give us very valuable information to invest or trade with more confidence. Teaching and learning technical analysis will help us a lot. For example, in this recent drop, using technical analysis, we could have predicted the drop in the price of Bitcoin from $8,000 to $6,500 and by selling on time, we could have protected our capital from losses. Using technical analysis techniques, you could cash out your bitcoins at $8,000 and benefit from this price drop.
What's the worst nightmare that could happen to crypto? Experts answer
What's the worst nightmare that is crypto panic and could happen to crypto? Experts Respond on October 31, 2008, a person - or group of people - calling themselves Satoshi Nakamoto published a nine-page paper describing a "purely peer-to-peer version of electronic cash" that would pay introduced a brand new online. A system called Bitcoin (BTC). Last year, Cointelegraph collected the wishes of industry leaders for Bitcoin in celebration of Walt Pepper's 12th birthday. This year, Bitcoin turns 13, and since October 31st is also Halloween, we decided to combine these two events. Combined in one event. Cointelegraph went deep into the souls of a group of crypto industry insiders to find out their biggest fears and nightmares about crypto, and asked them what they fear the most.
What is the reason for the continued decline of the cryptocurrency market?
The continuation of the fall in the price of Bitcoin has engulfed the cryptocurrency market in a sea of blood; this caused altcoins to take a downward trend at the same time as their leader. What is the cause of this fall and what is the future perspective of this cryptocurrency?
The main reason for the continuation of the downward trend of the last few days is probably the speculations about increasing the tax on capital gains by the Biden administration. This morning's Reuters report refers to proposed changes to the US tax code.
The doubling of capital gains tax to 39.6% for those earning more than $1 million is expected to have a dampening effect on this segment of the cryptocurrency investor population. As the widespread adoption of cryptocurrencies as a legitimate asset class permeates retail investors and institutions alike, this article refers to a "temporary" decline.
Another answer to the massive price drop can be found in today's expiration of $1.55 billion in options contracts. When we imagine that some investors bet on Bitcoin at $80,000 when the options expired last month, we get a good idea of how hurt these investors are today.
However, perhaps the main reason for the decrease in the price of Bitcoin is that in a certain period of time, the price of this currency rose very quickly and fell at the same speed. Some macro indicators suggest that the bull market is nearing a tipping point. Some of them even show that this climax is achieved within a few weeks.
This major and extensive correction for the market makes perfect sense. In the previous bull market in 2017, many corrections up to about 40% were recorded.
The current correction that has taken place over the past 10 days has reached around 26% so far. The correction reached 26.5% last month and the correction before that, in January, reached about 31.5%.
Even if it seems that a certain panic has reigned over the market which is a common-sense crypto panic, it can be argued that Bitcoin has reached a point where it will take a long time to stop. The fundamentals are very strong, the network effect is strong, and Bitcoin is outside the traditional monetary system. All these signs can make the future prospects of Bitcoin promising.
Five common mistakes traders make during a bear market
Cryptocurrency bear markets can be difficult and painful for new and inexperienced investors. Volatility in the cryptocurrency market is more extreme than in traditional stock markets, with some cryptocurrencies falling 90% (or more) from their peak prices.
What are a bull market and a bear market? How to trade in these markets?
Investors who do not have enough knowledge or are experiencing the bear market for the first time make many mistakes. With this in mind, learning some tips from people in previous cycles as well as identifying these mistakes in advance can save money and time.
Below are some of the most common mistakes traders and investors make during the cryptocurrency bear market and how to avoid them.
Selling due to panic (crypto panic)
Panic is generally harmful. When we panic, we feel intense fear and anxiety, and it is usually a response to an impending danger. When this happens, we are more prone to losing control and making passive decisions devoid of reason and logic.
In the context of trading and investing, panic selling refers to the act of selling a cryptocurrency in extremely high volume due to fear, rumor, or emotional overreaction. Investing in a crypto panic should not be based on emotions, but based on its features and goals, as well as sound analysis.
For example, many people consider Bitcoin to be digital gold (a valuable savings) that increases in value over time. Many people invest in this major market currency with the goal of preserving their capital's purchasing power, especially at a time when high inflation rates are causing fiat currencies to depreciate faster. If this is the reason for investing, the person has probably prioritized a long-term period and the only reason for selling should be the change in the fundamentals of this currency and the failure to achieve its goals.
What is Bitcoin? Complete bitcoin training
However, what we see in practice is that many people start selling their coins in the market when the price starts to drop. Many consider Bitcoin to be a risky asset. Therefore, in times of economic turmoil, there is a possibility that investors will sell this currency earlier than their other safe assets. This makes its price drop drastically.
During these selling pressures, many investors panic and experience crypto panic. This is completely normal and probably the most common mistake. Remember that no asset goes straight up and will definitely experience downtrends and declines along the way. The chart below shows the price movement of Bitcoin over the past 10 years.
Bitcoin is more volatile than traditional markets (such as the S&P 500 index), but the price of the currency has also increased significantly over time. However, the downtrends and declines in the price of this currency are severe and it is important not to overlook the main reason for investing in the first place.
Link to an asset
While you should avoid selling out of panic, that doesn't mean you should never sell an asset. Realizing you've made a bad investment and letting go of overconfidence are just as important. Some people are "closely attached to their assets", which means that they are not willing to sell it when its price falls and are hopeful about its future.
This is what happened to many people in 2017 and 2018 (the ICO boom). Many investors entered the market earlier than others, made good profits, but failed to realize their profits because they were looking for a higher return on investment (ROI). Later, when their cryptocurrencies began to fall, they did not sell because they were confident that they would rise again.
The reality is that many altcoins are down 90% or more from their highs and are unlikely to return to those highs. So, wherever you take a loss, you gain. The market is full of strong projects that you can earn by researching and investing in them.
Trading too much or over trading
This mistake also has a lot to do with the mismanagement of emotions. Overtrading or overtrading is a phenomenon in which a trader loses control and trades without any plan. Overtrading often occurs as a result of factors such as regretting not reading an investment article properly, missing an opportunity, wanting to recoup previous losses, etc.
What all of the above have in common is the motivation to make decisions based on emotions? Remember that the market does not care about your feelings and charts are nothing more than a visual representation of information and it is up to you how you interpret this information. In all cases, decisions should be based on facts, not emotions.
You also have to pay extra fees when entering and exiting trades, and if you don't manage entry and exit correctly, your costs can add up very quickly.
Trying to determine the time of the price floor
Trying to determine when the price will bottom out is another common mistake made by new traders. Some rely on the old belief that Bitcoin is still susceptible to further declines and buy later. Then, one of two things happens:
- The price of Bitcoin goes down, but they never buy and (again) think it will go down more.
- The price of Bitcoin never goes down and they don't buy thinking that the "last stage of the decline" will happen eventually.
Imagine Bitcoin is trading at $10,000 and you think it will hit $8,000 in another 20% decline. You don't buy it and then Bitcoin hits the $100,000 level in a parabolic uptrend. Now ask yourself if it was worth waiting for the 20% drop in value.
During the financial market crash on March 12, 2020 due to Covid-19, when the price of Bitcoin fell below the $4,000 level, many thought that economic conditions would worsen due to the quarantine and that the currency would fall further. But that never happened, and Bitcoin went on a strong upward trend, reaching a peak of $69,000 a year later.
No one knows the next direction of the price movement and whatever the analysts say is based on probabilities and speculations. Therefore, if you are not an experienced or professional trader, one of the best strategies you can use is Dollar Cost Averaging (DCA). If this strategy is used when the price is falling, it will bring better results.
In this amount of money, you can invest, it is divided into small parts and you enter it into the market at regular intervals (for example, every two weeks or every month). This will get a price quote from all the inputs and minimize you.
Lack of attention to mental health
More important than all of the above is the importance of your mental health. No wealth is worth sacrificing comfort and well-being. Cryptocurrencies are now part of the investment tools and mental health is very important because every day many people enter this market for investment and trading.
Be sure to pay attention to your mental health and do not neglect it and try not to experience crypto panic as much as you can. One of the most stress-free things you can do is invest for the long term, if you believe in cryptocurrencies. If you think that Bitcoin is digital gold and will replace traditional gold, why would you worry if it goes down or up more than 10%?
If you believe that Ethereum will become a global platform, with hundreds of thousands of developers and users around the world using it, does it matter whether you buy the currency at $1,000 or $1,100?
What is Ethereum? Complete training in Ethereum
During bear markets, prices fall sharply and it is natural for people to see their unrealized profits and capital decrease. Don't forget that life goes on outside the cryptocurrency market and remember that no wealth is worth as much as your health.
In this article we have seen how crypto panic can influence investments to act emotionally and cause losses. To avoid this, we suggest you subscribe to the Leaks channel and receive useful moments. Sell or buy crypto in time and be profitable.