Speculators flee to exit doors as bubble pops

How does one manage the emotions of bitcoin price volatility?

Sept 2017: professional technical trader on trading view recommends not to panic sell as bitcoin drops from approximately $2800 down to $1900 in just a week, a nearly 35% price correction, before subsequently climbing to $7000 in just a few months…

January 15:  he continues to provide in depth analysis stating that the bitcoin price decent that started in December 2017 from nearly $20,000 down to about $12,900 just prior to the new year, then 2 more unsustainable rally’s and drops leading to a third leg creating a new short term bottom, this trader claims that the bitcoin had completed its market bottom capitulation to begin the slow rise to $20,000 again.

And here we are, cruising between $7900 and $8800 hourly, a volatility that is loved by daytraders, but painful for HODLlers…  and the chatter on the forums, from Reddit to Quora, as wells as the various Facebook groups that I’m a member of has both sides of the crypto camp, the technical guys saying not to jump in again until it hits near $7000, while the HODLers (holders) are glued to the hourly price fluctuations, some hoping to see it return to their entry points as high as $14,000 in some cases..

For the speculators who just got into the game last month or even the month prior, they are in the “House of Pain” as the notorious Jim Cramer would say on his CNBC show, it is pure depression and misery for the folks who have seen their porfolio literally halved in just a few short weeks.  These speculators may never return to the crypto game, just as many investors and traders who lost it all during the financial crisis (including me) have never purchased a stock after 2008.

Had the typical investor held to a discipline of getting out after a 10% loss in value, they would be in a great place to buy right now, but unfortunately, many bitcoin and ethereum owners have a cult like addiction to their coin, so they follow the herd and claim to stick to their hold theory even if it goes to zero.

NOW, for fun, lets go all the way back to bitcoin in 2014.  Once again, there was a panic sale. This comparison will make us all think about what is happening in today’s cryptocurrency crash.  Here, a true to form bitcoin HODler explains in a Reddit post his psychology on his hold discipline during the past 4 years,

“Having seen several ongoing price corrections over the past 4 years, and when I first bought in early 2014, I spent almost a year underwater. Some of the retracements have happened while I was underwater, and others while I’ve been in the black. All of them had some common psychological effects on me and I wanted to share some lessons learned.”

This investor endured these following price corrections:

January 2014: $949……..February 2014: $556 (41% decline month over month)……..March 2014: $492………April 2014: $363 (another 34% down from FEB, 62% down from entry point, now, this HODler is in pain)

 

From April, all the way to December, the price fluctuated between $363 to $644, so this volatile ride is not for the faint at heart.

“Watching it go down is stressful, regardless of if you’re up a lot of money. Selling a portion of your hodlings at key price points  has helped me mitigate the effect of Bitcoin’s volatility when its heading down. Once you sell for your initial fiat investment (or a little more) it gets a lot easier to put your crypto on the side and any gains would be just icing on the cake. I’m lucky to have gotten in this space early.  It’s still early for Bitcoin”

So what is the takeaway from this?  Today is a correction, there were too many speculators artificially inflating the price.  Does that mean that a $20,000 bitcoin price in 2018 is not realistic?  No, but it could reach that value with real users, not the speculators using it as a trading platform, rocketing it to pricey unsustainable gains in weeks… just like the case of Ripple from 72 cents in mid December to $3.86 just 2 weeks later.

This is not a systemic collapse like that of 2008, but possibly an opportunity to purchase these currencies at more realistic entry points.  Bitcoin, litecoin, ethereum, and many useful cryptocurrencies have real world application and are not just day trade mechanisms.  Bitcoin didn’t rise from its $500 average in 2014 to over $10,000 in 2018 based on daytraders.