Over the past seven days, we’ve noticed a surge in bitcoin liquidations in the financial world.
If you’re not acquainted with the phrase “liquidation” in the financial realm, it’s when a trader is compelled to terminate a leveraged trade due to the exhaustion of the margin for the trade.
In simpler terms, it’s when someone borrows funds to predict the price movement of bitcoin and their prediction falls short, leading to a loss of the money they invested in the trade (or even more, in certain situations).
When it comes to leveraged bitcoin trading, I always remember the following line:
A fool and his leveraged #bitcoin are soon separated.
As one of my mentors said, “up 6% today, down 100% tomorrow.”—@aantonop
Another wise words, “#notyourkeysnotyourcoins”
Stay cautious. @michaeljburry is correct—there’s a lot of hidden leverage in #bitcoin. Buyer Beware.
— Caitlin Long 🔑⚡️🟠 (@CaitlinLong_) June 20, 2021
So, the first rule of investing in bitcoin is to avoid doing so with leverage. (This is not financial advice.)
Despite bitcoin’s approximate $2 trillion market cap, it remains an extremely volatile asset. Its price significantly varies according to the news. Therefore, it’s safer to buy some bitcoin in the spot market and keep it for a long period (at least four years).
Moreover, if you decide to purchase bitcoin in the spot market, consider being underexposed to bitcoin rather than overexposed (interpret these terms as you wish).
If you’re overexposed to bitcoin or if you’re a novice in the market and have invested all your resources in bitcoin, there’s a higher chance of panic selling if its price plummets in the short term.
How can you tell if you’re overexposed? You’ll probably start losing sleep over it and/or investing emotional energy hoping that the price of bitcoin will rise.
I’m sharing this based on my personal experience. I was overexposed to bitcoin in 2021-2022, and it often made me feel uneasy. Once I reduced my exposure, I felt better and my thinking became clearer.
Find an investment limit that makes you feel comfortable, and plan to hold on for the long run.
Trying to get quick riches with bitcoin is almost guaranteed to end in disaster.
Take your time, and remember the wise words of renowned Bitcoiner Matt Odell: stay modest, stack sats.
(The opposite of such sound advice would be: be reckless, gamble irresponsibly on bitcoin.)
Stay safe out there.
This piece is a Take. The views expressed are solely those of the author and do not necessarily represent those of BTC Inc or Bitcoin Magazine.
