The virtual currency bubble has bewildered countless individuals, prompting them to invest without hesitation. Some even choose to quit their jobs, putting all their savings into the wave of speculation and then documenting their speculative journeys online.
It is certain that those who start participating in speculation usually find it easy to make profits, and this feeling of quick profit becomes addictive, further igniting their greed as they hope to amass more wealth. However, even without a burst of the virtual currency bubble, speculators face significant risks of loss. Now, let's look at the seven most common ways speculators 'die'!
The first type: dying from buying at the bottom against the trend
The sharp decline in virtual currency prices often becomes a litmus test for the greed of speculators. Some speculators excitedly see the market decline and impatiently choose to buy at the bottom against the trend, yet they do not realize that the so-called bottom is not the end, but a bottomless pit.
The bottom of this pit may hide more uncertainties and risks, like an abyss without a bottom; once fallen into it, the bottom buyers may find themselves in endless predicaments, buying time and again, falling into traps repeatedly.
It can be said that buying at the bottom against the trend is one of the main reasons for many speculators' losses. In a clearly declining market trend, some speculators mistakenly believe that the price of virtual currencies has dropped to a level attractive to new speculators, thus expecting a rebound.
However, the reality is that the more they buy at the bottom, the more they lose, until they can no longer bear it, not only losing their previous profits but also possibly exhausting their principal.
Taking the volatility of Bitcoin in 2013 as an example, it skyrocketed from a few dozen dollars to about 1,000 dollars, then plummeted to over 100 dollars. This rollercoaster market has bankrupted countless speculators.
The strategy of buying at the bottom can only succeed in a market that is fluctuating or correcting upwards; at other times, such behavior is usually a shortcut to ruin. This underscores the importance of following the trend; proper trend-following can lead to multiple successes in fluctuations, while counter-trend operations, even if correct many times, can lead to irreparable losses if done wrong once.
The second type: dying from leveraging
In the virtual currency bubble, some speculators have tasted the sweetness and yearn to increase their investments to earn more profits. However, due to a lack of excess funds, they start considering borrowing money or financing for speculation, thereby increasing their leverage.
Currently, the common leverage ratio is 5 to 10 times, meaning speculators can borrow more funds to invest with limited capital. For example, with 5x leverage, if the principal is 300,000 yuan, the speculator can borrow 1.2 million yuan and then fully invest in virtual currencies. Regardless of whether the price of virtual currencies rises or falls, profits or losses will be magnified by 5 times. Specifically, if the price of virtual currencies rises by 10%, the speculator's profit will be 50%; conversely, losses will also be magnified by 5 times. This means that if the speculator's losses reach 20% of the principal, liquidation will occur, and both the principal and borrowed funds will be wiped out.
Typically, speculators do not start with high leverage but begin with a lower leverage ratio. However, repeatedly making profits gradually relaxes their vigilance against risks, leading them to blindly believe that virtual currencies will only rise and not fall, ultimately resulting in total loss. For example, from 2017 to 2018, Bitcoin continuously broke important price thresholds, reaching a peak of 18,000 dollars, and many increased their leverage during this process, hoping that the price of Bitcoin would further rise to 30,000 dollars.
However, Bitcoin eventually dropped from 18,000 dollars to around 10,000 dollars, and leveraged speculators faced liquidations, suffering painful losses. In short, this behavior involves seeing some speculators become wealthy overnight and then chasing short-term profits, only to bet on the wrong direction.
The third type: dying from candlestick charts
Virtual currency trading uses candlestick charts. Although this knowledge originates from the stock and futures markets, the candlestick charts of virtual currencies cannot be completely applied using the experiences of the stock and futures markets. Due to various uncertainties, relying solely on charts for speculation can lead to severe losses.
For example, in 2013 and 2017, the Chinese government cracked down on virtual currencies, leading to a sharp decline in their prices; in 2017, the South Korean government also took action against virtual currencies, similarly triggering a significant price drop.
In short, virtual currencies cannot gain formal recognition from central banks worldwide, and lacking legal status makes them vulnerable to various policy shocks. These shocks cannot be predicted in advance through candlestick charts, making it difficult to avoid risks. Additionally, illegal activities such as price manipulation and market-making exist in virtual currency trading.
In the formal stock and futures markets, such behavior is explicitly prohibited and regulated. However, virtual currency trading is in a relatively chaotic era, with various scams rampant, making the role of candlestick charts relatively minor, and they may even become a tool used by scammers to bait speculators.
The fourth type: dying from chasing up and killing down
Due to the instability of candlestick charts and the lack of other more reliable buying and selling methods, the vast majority of speculators tend to adopt a chasing-up-and-killing-down strategy. It is well known that this strategy may yield substantial profits in the short term, but in the long run, the chances of loss are much greater.
In the stock market, the probability of long-term profitability is about 10%, which even includes some value investors. In the futures market, the probability of long-term profitability drops to 1%. In contrast, the difficulty of speculating in virtual currencies is even higher. Although many speculators currently claim to have achieved some returns, whether the proportion of those who can sustain profits exceeds 0.1% is highly questionable, and most speculators may ultimately incur losses in the market.
Additionally, while some people realize the instability of chasing up and killing down and want to hold virtual currencies for the long term, human nature is inherently greedy and fearful. They fear falling prices while feeling greed for rising prices, leading to actual operations being inconsistent with rational assumptions.
Only a very small number of people can overcome this nature and conquer greed and fear. However, most people continue to repeat their mistakes in a loop, much like a goldfish with a 7-second memory, making it difficult to truly change.
The fifth type: dying from not stopping losses
For some speculators, they firmly believe that no matter how much the virtual currency price plummets, it will eventually rebound. They adhere to the belief of holding and not selling, even claiming they would never sell even if they die, remaining calm in the face of any downturn, believing that miracles always exist.
However, for certain virtual currencies, refusing to sell even in the face of loss can indeed lead to heavy losses. Taking Zhonghua Coin as an example, it once dropped from a peak of 35 yuan to 0.5 yuan, then collapsed and was investigated for suspected pyramid schemes, with 260 million yuan of funds vaporized. This can be considered one of the most tragic ways for speculators to 'die'.
Speculators who are easy to fall into traps mainly fall into two categories: one category is those who are new to speculating, as ignorance breeds fearlessness, leaving them oblivious to the cruelty of this way of 'dying', leading to their funds being inexplicably consumed; the other category is veterans who have been in the speculation circle for some time and have experienced multiple trades, generally achieving some profits.
Having become accustomed to the wild fluctuations of virtual currencies, some even see the downturns as opportunities, growing bolder without realizing the variety of virtual currencies, which can lead to liquidation or collapse if they're not careful. Many tokens have experienced liquidation due to policy crackdowns, causing previous gains to plummet.
The sixth type: dying from high-frequency trading
Many speculators are keen on high-frequency trading, frequently buying and selling to seek substantial profits from price differences. However, the final result often leads to continuous losses. Why does this happen? Theoretically, earning 1% on each trade means that as long as they successfully make one profitable trade each day, the daily return is 1%.
Within a year, this could bring a profit of 365% or even more. If the compounding effect is considered, this figure is even more astonishing. However, in reality, achieving this goal of successfully trading once a day seems simple, but the actual operation is an extremely difficult task.
This is because the price of virtual currencies is highly volatile, making accurate predictions for short-term trading very difficult, and high-frequency trading leads to a decreased success rate. A lower success rate results in more losses, and increased losses affect traders' mindsets; a deteriorating mindset further leads to more and larger losses, forming a vicious cycle.
For instance, imagine the consequences of frequently changing lanes on a highway; nearly everyone knows that such behavior will eventually lead to trouble. The principle behind high-frequency trading of virtual currencies is similar. Additionally, high-frequency trading leads to more transaction fees, and the actual profit may not cover these fees, which is a common problem.
The seventh type: dying from blind following the trend
Many speculators lack a deep understanding of virtual currencies; they hastily come to speculate simply because they have heard that it can be profitable. Upon exposure, they often blindly worship the remarks of some influencers, such as that Bitcoin will ultimately become fiat currency, the limited quantity of virtual currencies will not depreciate, and that the future of the 21st century belongs to virtual currencies. This viewpoint is widely present on social media platforms like Weibo, Xueqiu, and Zhihu, forming some 'spiritual leaders' who advocate speculation.
Many people believe it, with some resigning to speculate on virtual currencies and others even selling their homes or borrowing money to invest. However, the end result is that they earn no money and waste their jobs and careers.
Take the well-known figure in the virtual currency circle, Li Xiaolai, for example. He once promoted the token EOS, helping it raise 185 million dollars in just five days. However, later EOS issued a statement clarifying its relationship with Li Xiaolai, denying him as a co-founder or director, which was shocking. Many virtual currencies seek endorsements from influential figures to mislead speculators into believing that the technology is robust, has great prospects, and will experience a surge. The blind faith in the recommendations of fictitious influencers and the so-called bright future of emerging virtual currencies is often just a prelude to death.
