The crypto crash is brutal and the fear is real. So why did it happen? The real reason is often fabricated or formulated after the fact so no one was truly sure that the crash was coming before it did. But that is not the main point of this post because no one will ever be able to predict such crashes before they happen. Instead, this post is going to focus on why these crashes might have happened even before they did. In fact, a year ago, I wrote quite a controversial post about crypto saying that finite quantity does not equal infinite value. This time, I will talk a little about the mentality behind the majority of traders trading assets like crypto.

Many of these traders might not know what they are doing

Traders also have different skill levels and experiences. If the overall skill level of traders in a particular asset class is low, meaning they are just trying to earn some money from it, then there is little to no logic in that market. As such, there is no way to understand any of those price movements, and all the inputs you can get from other traders are all based on pure coincidence, luck, or even hearsay. No doubt some might make a killing from these assets but bear in mind that those outcomes will not occur consistently and they are at high risk of losing everything they get from the market. In other words, there is little to no chance you can do well in such a market and asset class.

These markets have few serious retail investors

Serious retail investors are investors who are basically deploying years of savings in the market on the assets that they believe in. Comparatively, the percentage of people who are doing that in crypto is potentially way lower based on what I have heard from those who are involved. Therefore, if you choose to invest in assets like crypto you are basically putting money into something that people are usually just curious about rather than truly believing in it.

Many “investors” in these assets do not know the difference between market cap and real value

I have heard that this particular asset or stock hit X amount of market cap and it always annoys me. Market cap does not mean anything especially when prices can climb at an almost exponential rate for a prolonged period of time. This means that those market capitalization figures are nothing but misleading numbers meant to create hype about a particular asset. In those situations, laugh about it and run because all hypes usually lead to a big dip when you are already fully vested in a huge amount of capital.

Closing Thoughts

I hate to see people feel down in the dumps but I also hope they are able to learn from their mistakes. Such wishful thinking and unrealistic beliefs will not lead to a happy ending because it is simply unsustainable and not backed by any real value and logic. Right now if anyone is looking for a real way to invest and trade, I hope they will look up to investors who have stayed grounded and stubbornly stick to only assets that they truly understand and believe in.