Investing in crypto is one of the most popular ventures at the moment. Since its emergence back in 2009, Bitcoin has served as the model for several other altcoins. However, over 2022, the digital asset market has seen constantly plunging figures. Only at the beginning of 2023 did the Bitcoin price start climbing again. And while the current price, positioned at roughly $21,000, is a marked increase compared to the beginning of the year values that were barely in the $17,000 margin, it is still a far cry from the values of BTC in 2021 and 2020. However, investors are optimistic that the situation will change sooner rather than later.
Investing in cryptocurrencies, however, is associated with a certain degree of risk. Cyber assets, in general, are more volatile than more traditional holdings, meaning that all traders are advised to never add in more capital than they can comfortably afford to lose and never, under any circumstances, use the money from their savings or that you would use for your daily needs. This is to avoid particularly troublesome situations and finding yourself in truly dire financial straits due to a poorly placed transaction.
As a result, many investors find themselves struggling with negative emotions and experiencing a significant degree of anxiety in relation to their ventures. The problem was exacerbated over the last year when crypto winter reigned supreme. With the sudden surge in price for Bitcoin, many believe spring is finally coming. However, this doesn’t mean that the investors’ mental health should take a backseat.
The most common problems
There’s no definitive list of the mental health issues investors are more likely to encounter than the general population. However, there are undoubtedly some problems that are likely to be a direct result of becoming a trader. One of the most common is FOMO, the anxiety associated with the fear of missing out on a good deal. This takes a toll on your mental health and can also have a detrimental effect on your finances. The fear of missing out causes you to follow the herd mentality and purchase Bitcoin when the price is high.
One of the best ways to avoid falling into this trap is to stay well-informed. And no, that doesn’t mean checking social media regularly. That might be a definitive recipe for disaster because the posts tend to reinforce your existing beliefs, providing the fuel necessary for you to act rashly and make swift decisions you might regret later.
Another problem is the risk of becoming overinvested in crypto. While checking the price regularly is essential as it enables you to buy when the price is low and sell only after it has climbed back up, the constantly fluctuating crypto prices can also cause you to develop a skewed perception. You might not even notice it, but the most common sign is isolating yourself from the rest of the world and beginning to neglect the activities you once enjoyed doing in favor of crypto. Constantly checking the price chart is more likely to make you excessively worried and exacerbate FOMO, so taking a step back from trading every now and then is important.
The plain risk associated with crypto can also have a negative effect on you. Before you enter the world of crypto, you must run an objective assessment of your risk tolerance. If you discover that you’re unlikely to withstand long periods of investment risk, you have two options: build your patience to allow for more or look for a different asset class to invest your capital into.
What can you do?
So, does the risk associated with trading mean that you have to give up crypto altogether? Of course not. However, the first and most crucial step is to be aware of the mental toll it can take on you. Developing an obsession with digital coins and tokens that spiral out of control isn’t directly the fault of the assets themselves. Instead, the problem lies within the hype created around the market.
The highs are very high in the crypto ecosystem, and the lows are very low. Being on a rollercoaster of extreme emotions, whether elating or severely disappointing, is not a good thing. Even experienced bitcoin investors have a significant amount of pressure they have to face, as the consequences of losing crypto are understandably upsetting for traders who have put in their money, time and hopes, only to turn up with much less than they were expecting, or nothing at all.
Experiencing significant losses in short succession – something that has unfortunately happened quite often during the crypto winter – can lead you to develop loss aversion. Losing money can lead you to conclude that it’s healthier to give up investing for good rather than continue losing. To avoid this scenario, reduce the amount you’re investing. Slight losses can largely be mitigated by shifting consumption patterns, such as the amount of capital you put in for a transaction. However, losing amounts so large it enters the realm of legitimate wealth losses means you’ll have to work hard for years to recover your returns.
Can you control it?
Being in complete control of your emotions is a nearly impossible feat. You’re bound to make emotional decisions throughout your life, in your trading choices and outside of them. However, you should still aim to make choices that are as rational and objective as possible. If you’re unsure whether a choice belongs to you or is motivated by the latest BTC piece of news you saw, take a step back and analyze your motives. If you notice that you are about to buy or sell simply because you’ve heard other people are doing it, resist the impulse to trade.
When you take some time to relax, you also avoid letting your emotions overrule your decisions. Before investing in crypto, get a realistic perspective on what it means and the risks involved. Not knowing these aspects leaves you vulnerable to losing money. Understanding the darker aspects of investing won’t guarantee success, but it helps create better projects and removes some of the anxiety associated with trading.