For the moment, there are two possible reasons for the sharp decline in Bitcoin and the cryptocurrency market as a whole:First, a sudden power outage where a lot of mining is taking place (its already 21% of Bitcoin mining done) caused a significant drop in the hash rate. Then, there was a rumor that the US Treasury Department tweeted accusing several financial institutions of using cryptocurrencies to launder money (which later proved to be untrue).
There is a theory that these two events combined with already uncertain trends and indicators led people to want to get rid of all cryptocurrency assets as quickly as possible. This in turn triggered a series of stop-loss and sell bots, leading to more panic selling. The situation was really bad when a large number of leveraged long positions were closed out, and on a huge scale. The liquidation of long futures created even more selling pressure, which reduced our leveraged positions by a factor of 3 or even 2 if we bought at the top.
What do we need to learn from days like the recent ones? Cryptocurrency is a 24/7 business. We absolutely have to be prepared so that events like this don’t hit us at the worst possible time. For example, we cannot manage our portfolio in time when we are sleeping, when we are attending a wedding, when we want to take a break from trading and desperately need a rest. If the success of our strategy depends on us constantly monitoring the charts and never sleeping, then please find a safer strategy. And be prepared as well as stay mentally healthy.
The best performing portfolios in this roller coaster ride are those that hold only a small percentage of risky positions. 90% spot, 10% futures is a reasonable separation. Otherwise we are exposing ourselves to extreme risk. Again, this should be common sense, but it needs to be reiterated:Don’t invest money where we can’t afford to lose! Don’t use rent or mortgage payments, don’t trade cryptocurrencies with pawnshop loans and college funds!
Stop profit! If our portfolio is making a lot of money, the first question should not be “How can I increase it 10 times?” but rather, “How can I make sure that what I get is always mine?” Profitability means more than just swapping USDT and cryptocurrency. If you’ve already made some money, consider getting out of cryptocurrency altogether. Convert it into nuggets, put it in our savings account, and use it to buy some good stuff.
Manage our risk. It’s tempting when we see all the people doing 20x, 50x, 100x leverage and making lots of money, but don’t put most of our money into high-risk investments. This includes leverage, strange currencies or tokens. Diversify your investments. The way to hedge risk is to put our money in several things so that they balance each other out. Of course, it would be great if we could benefit from this highly leveraged, high-risk trade.
It is also important to note that when a big event occurs that affects the fundamentals of a particular currency or system/market, it tends to invalidate all technical analysis (TA) – at least in the short term. For such events as we have witnessed recently, “wait and see” is always the best strategy. Once we have done so, the opportunity to start revisiting our own tokens and re-evaluating them, in many cases, we may find that they bounce back to their previous “pattern”, which is a good sign that the trend is (still) healthy. If this does not happen within 24-48 hours of the “earthquake”, this is a good indicator that yours is not particularly strong.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/what-should-we-learn-as-bitcoin-plunges/
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