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The 27-year-old office manager in Madison, Wisconsin had invested all of his investments in cryptocurrencies, including bitcoin, ethereum and dogecoin, a coin whose rapid rise he considered entertaining. so “ridiculous”. This alarmed his father, an experienced investor.
“He knew I had all my money in there and he was like, ‘I’ve seen this before with the dot-com crash, and I don’t want to see you lose thousands of dollars.” McGurn told CNN. Business.
He heeded the warning and sold his crypto holdings in the middle of last month, just as a massive rout was setting in. Many digital coins eventually lost almost half of their value, or even more.
“I was lucky,” McGurn said. “I don’t think I’m the norm at all.”
McGurn is one of a legion of investors new to cryptocurrency. Attracted by the huge gains that started at the end of 2020 or by the enthusiasm around dogecoin, they entered the market looking to make a quick buck or avoid missing out on the next big thing.
Now, in the wake of their first massive sell-off, some are giving up investing in crypto for good, while others are determined to stick it out, confident in its promise.
“I don’t want to panic over something I just ventured into,” said Akshaya Parthasarathy, a 24-year-old living in Chennai, India.
Fresh money is pouring in
After a few lackluster years, bitcoin took off last December, quickly hitting a series of records as risky investments skyrocketed after the U.S. election. The craze accelerated when Tesla (TSLA) announced it would start accepting bitcoin payments for its cars. Other big companies, including Mastercard (MA) and BNY Mellon (BK), America’s oldest bank, have said they are thriving in crypto, signaling growing acceptance among the general public. GameStop (GME) at the end of January. In the first three months of the year, 9.5 million people traded cryptocurrency on the popular Robinhood app among young investors, up from 1.7 million in the previous quarter. The crypto platform Coinbase reported 6.1 million active retail users in the first quarter, more than double the last three months of 2020.
The mood got even more hectic from there. Dogecoin, a cryptocurrency inspired by an internet meme featuring a shiba inu dog, started to soar in April, finally hitting an all-time high of nearly 74 cents last month. This has attracted even more speculative investors, some of whom have placed additional bets on spinoffs that have no practical use and are known in the crypto community as “shitcoins”.
After reading success stories online or hearing them from friends, new traders “didn’t want to miss out,” said Lisa Kramer, a finance professor at the University of Toronto who studies investor behavior.
Then came the crash. The market lived up to its volatile reputation, imploding after Tesla CEO Elon Musk, whose cheerleader fueled the dogecoin rise, tweeted that Tesla would stop accepting bitcoin payments due to concerns about the environmental impact of their operation. The resulting sale ultimately wiped out over $ 410 billion from the market value of bitcoin and nearly $ 25 billion from dogecoin.
But some crypto fans remain devout. In fact, small bitcoin investors defined as those with between $ 37 and $ 37,000 increased their holdings from almost 4.8% to over 5% of the total supply during the recent sale, ”suggesting increased interest as prices [declined]”, according to data from researcher Glassnode.
On the Internet Reddit bulletin board, devotees encouraged each other to “buy the drop” so they could lock in future earnings. Some have been rewarded; dogecoin, which on the recent sale fell to $ 0.22, climbed back above $ 0.40 this week after Coinbase announced the launch of the trade for users of its Pro service, although its price remains very unstable.
According to Kramer, there is a term in academia that can help explain this phenomenon: “disposition effect”. Research shows that investors feel the pain of portfolio losses more strongly than gains, and tend to focus on the price at which they bought an asset. This often serves as a barrier to unloading bad investments.
“This tendency to hold onto underperforming stocks can end up continuing to cost the investor dearly,” Kramer said. “Investors often make decisions based on instinct, but it can really lead them astray.”
‘Never again’
Many crypto investors say they are still involved because they believe in technology. Parthasarathy, who recently quit his job to pursue a master’s degree in data science, was once a crypto-skeptic but was intrigued by all the action surrounding dogecoin and started reading online.
She ended up investing a small amount in Ethereum, as well as Hedera Hashgraph and Polygon, two popular tokens on Reddit’s main cryptocurrency forum. Soon after, she was checking the WazirX app used to trade cryptos in India “almost every five minutes.”
And although Parthasarathy admits the past few weeks have been heartbreaking, she plans to stay invested.
“I see it as a long-term thing, and I’m going to keep investing more money in it,” she said, adding that she was only investing what she would be willing to lose.
Rebecca Robinson, a 28-year-old San Diego student who works part-time as a line cook, lost a few hundred dollars after Musk rocked the market. She still puts 10% of her paychecks in crypto, including ethereum and smaller Cardano and Algorand coins.
“People treat the rooms as if they were sports teams,” she said. “If you have a lot of people who [say], ‘Yeah we believe in this piece!’ they’re not going to sell when it goes down, and that’s cool. “
But she no longer relies on margin trading, which allows investors to borrow funds so they can make even bigger bets.
“Never again,” said Robinson. “It’s too scary.”
McGurn, who started trading crypto in late 2020, also plans to invest differently after the recent market crash, even though he narrowly exited before losing any money.
“It was kind of a wake-up call for me,” he said. “It’s good to have a little speculative investment, but I can’t risk my life on it.”
McGurn said he now plans to put his money in Apple (AAPL) or Amazon (AMZN) stocks, which he sees as “stronger” choices, despite having bought back a coin from Ethereum.
“It’s just stupid,” he said. “I will never have invested so much in crypto again.”
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