Lessons From A Major Bitcoin Dip
Maybe you are still wondering “what the hell happened today?”. Maybe you’re ready to quit crypto trading altogether. Take a step back and let’s analyze this.
As for today, there are likely two causes for Bitcoin and the whole cryptocurrency market dipping by a lot: First a power outage in Xianjing province in China where 21% of Bitcoin mining is done caused the hashrate to drop significantly. Then there was a rumor tweet about US treasury going after several financial institutions for money laundering by using cryptocurrencies (which turned out to be untrue). One theory is that it was both events together along with an already indecisive trend and indicators that caused people to get rid of all their crypto assets as fast as they could. Which in turn triggered a bunch of stop losses and bots that sold, causing more people to panic sell. Shit really hit the fan when a lot of leveraged long positions got liquidated, the scale of which is immense. The liquidation of long futures caused even more sell pressure which brought us to a dent that even rekt some 3x and even the occasional 2x leveraged position if you got in at the top.
What do we learn from such a day as this? Crypto is a 24/7 business. You absolutely have to prepared for an event like this to hit you at the worst possible time. While you’re sleeping, while you’re at your grandmother’s funeral and can’t run off to manage your portfolio. When you want to take a much needed break from trading. If the success of your strategy depends on you constantly monitoring the charts and never sleep, please find a safer strategy. Prepare your positions as well as your mental health for an event like this. The portfolios that did best during this rollercoaster ride were those that had only a small portion of risky positions. 90% spot, 10% futures is a reasonable split. Anything more and you’re exposing yourself to extreme risks. Also, this should be common knowledge, but it needs to be reiterated: Do not put money in that you cannot afford to lose! No skipping on rents or mortgage payments, no pawnshop loan and no college fund to trade crypto!
Take profits! If your portfolio has gained a lot, your first question should not be “how can I 10x this?” but “how do I make sure that what I have gained stays mine?”. And taking profit not only means selling your alts for USDT. If you’ve made some money, think about taking it out of crypto completely. Convert it into gold nuggets, put it in your savings account, buy some nice things with it. Just don’t re-invest it thinking it would be better to go all-in on this next surefire trade. What’s out is yours, what’s still in a position is still unrealized profit and can vanish in a matter of minutes.
Manage your risks. While it’s tempting when you see all the sharepics of people doing 20x, 50x, 100x leverage and earning a lot of money, don’t put a sizeable portion of your funds into highly risky investments. That includes leverage but it must also be applied to strange coins or tokens, ICOs/IDOs and rumors about meme coins. Diversify. Hedge your risk by putting your money in several things so that they might balance each other out. Sure, it’s great if you can pull of that one high leverage, high stakes trade. But that’s not serious investing, that’s gambling.
It’s also important to note that when large events occur that affect fundamentals of either a specific coin or the system/market in general, it tends to invalidate all technical analysis (TA) — at least in the short term. In the case of such an event like the one we witnessed recently, “wait and see” is always the best policy. Once you do this, revisit your coins and re-assess your TA, in many cases you may find a bounce back into the prior “pattern” or movement, a good sign means the trend is (still) healthy. In cases where this isn’t happening 24–48 hours after such a shock, it’s a good indicator that whatever movement you were following wasn’t particularly strong.
So, stay safe, trade responsibly and with a clear head. Manage your risks so that you will stay in the game. Let’s grow and become rich together!
Written by SaneJan from GigaChad
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