> TL;DR: A latent loss is only on paper. The loss only becomes “real” when you actually sell. Until you sell, everything can still change (for better or for worse).
1. The analogy of yogurt in the fridge 🍶
Imagine that you bought a pack of yogurts for 5 euros. The next day, another store offers a promotion for 3 euros. You could say: “Oh no, I lost 2 euros!” But as long as you don’t resell them, it’s not a real loss. The yogurts stay in your fridge, you can still eat them! Your “loss” is only potential, we then speak of latent loss.
2. What is a latent loss? 🤔
Latent loss: Decrease “on paper”, as long as you do not sell.
Latent Gain: The positive mirror effect (a potential profit if the value exceeds your purchase price, but not realized until you sell).
(Hypothetical) example with BTC (January 2025):
You buy 1 BTC at $93,000.
The price then drops to $89,226 ➡️ On paper, -$3,774.
Until you sell, it's just a latent loss.
A few days later, BTC soars to $109,382.75 🚀
Your old latent loss now becomes a latent gain!
3. Why is it essential to make the distinction? 🔎
1. Avoid panic 😱: Understanding that “drop != realized loss” avoids panicking when the market temporarily reverses.
2. Long term strategy: Volatility is part of the game, especially in crypto. If you have a long term view, you know that the short term roller coaster is not always a reason to sell.
3. Tax aspects: According to the legislation, you are only taxed on the capital gain (or you can only deduct the loss) at the time you sell.
4. The common mistake: confusing decline and loss
On social media, we often see people proudly announcing “I lost $3,774” when BTC drops from $93,000 to $89,226. In reality, nothing is lost forever until they hit “Sell.”
> Remember this: Not sold, not (yet) lost! ☝️
5. Some tips to stay zen 😌
1. Diversify: Don't put all your capital into one super volatile asset.
2. Practice DCA: Buy regularly (every week or month) rather than all at once, to smooth out your purchase price.
3. Educate yourself: The more you understand the tech/project behind a crypto, the more you can accept its price movements.
4. Control your emotions: If volatility is making you sleepless, review your strategy or reduce your exposure.
5. Check the price less often: Checking the price every 5 minutes only fuels stress and hasty decisions.
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Conclusion
The latent loss remains a theoretical figure as long as you don’t sell. On the crypto markets, going from $93,000 to $89,226, then to $109,382.75 in a few days is not impossible. Don’t shout “I lost everything!” before you’ve really parted with your assets. As long as you still have your yogurts (🍶) in the fridge, the end of the story is not written! ✨
