How investors lose money when bitcoin rises
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Illustration: Brendan Lynch/Axios
The whole crypto market is going up, with bitcoin setting new all-time highs almost every other day.
Why it matters: Exciting times like these explain why more people who have invested in crypto report losing money, rather than making it.
The big picture: Most people enter markets when the prices are going up fast.
- That's why the prices are going up so fast: There are more buyers than sellers.
- Rapid price rises in any asset are a dog chasing its tail.
Remember Warren Buffett's famous adage: "[B]e fearful when others are greedy and ... greedy only when others are fearful."
- In the crypto markets, people are very greedy right now.
Yes, but: That doesn't necessarily mean buying now is a bad move. It just depends on what your goals are.
- Some people with average incomes have done very well in the crypto market by approaching it with a long-term mindset.
- The people who have lost money in bull runs have been those who got scared when the price started to fall fast.
Catch up quick: The peak in the last cycle hit in November 2021, above $67,000, but it fell to a low of $15,742 a year later (a 77% loss), amid the FTX collapse.
- Bitcoin has been periodically setting new all-time highs ever since spot ETFs were approved in early 2024. It first broke $100,000 late last year.
Threat level: Joe Kelly, CEO of bitcoin finance and security firm Unchained Capital, tells Axios that he sees two ways people lose money again and again when the market perks up.
- "One shouldn't go looking to alternative cryptocurrencies as a way to get in on something that looks like it could be the next Bitcoin," he says.
- Bitcoin has a much brighter future than any of its imitators, he predicts.
- He also warns new entrants to "be aware of your security footing and ensure your bitcoins are safe from cyber and physical threats of theft and loss." For example, don't tell people you have it.
By the numbers: So far bitcoin price has never fallen over any four-year period, even starting at a prior price peak.
- In fact, very few investors have lost money if they held for three years or more.
- And today, the crypto market has considerably more fundamental strength than it had in past upswings.
- When looked at that way, the 80% downturns that have hit Bitcoin in the past have been a boon to long-term buyers.
What they're saying: Sharp corrections could hit before the final all-time high.
- Long-time Bitcoin technical analyst Willy Woo said on X, "There's a ton of profit in coins that have been selling and plenty more profit-taking to go before we are properly reset."
The bottom line: Investors who have conviction about bitcoin or another cryptocurrency have a decent shot at doing well, provided they have the nerve to ride out some drops and stick around a while.
- But if you're looking at a crypto app right now because you think you can get rich quick, there's a decent chance that you will end up making profits for someone else.
- Chase the easy money with extreme caution.
